By Subrata Majumder
Proclaiming 10 years of Make in India a big success, Commerce and Industry Minister Piyush Goel was euphoric to term India more competent than China+1 strategy. He said “ India is competitive, not dependent on China+1”, focusing Ease of Doing Business and improving India’s ranking.
Incidentally, Commerce Minster’ claim turned over-emphatic. South East Asia emerged more attractive destination for foreign investors with the advent of China+1 strategy. Foreign investment spurred in South East Asia (ASEAN 10) with mega share of investment shifting from China. In contrast, foreign investment in India plunged. Make in India lost steam, leading to manufacturing growth at abysmally low.
Exports of ASEAN surged double digit growth, while India’s exports underscored erratic trend. India topped in unemployment, while ASEAN inched for minimal unemployment.
China+1 is a supply chain strategy. It garnered global attention between 2014 and 2015. It sparked a new movement for diversifying from China, due to escalating costs of labour in China, minimizing supply chain dependency on China and increased sourcing options in other Asian countries. The goal was to reduce the risks of over dependence on a single nation for sourcing and manufacturing Now, 10 years later, China+1 has seen resurgence , fuelled by geopolitical tensions, and COVID19 impact .
China+1 means foreign investors would allow business to continue in China, while spreading their expansions across multiple countries, which are considered “Plus One”
Alas! The success story of Make in India busted.. It lost steam and its target. The key objective of Make in India was to boost share of manufacturing in GDP from 17-18 percent in 2014 to 22 per cent in 2022. In contrary, share declined over the decade. It declined from 18.2 percent in 2015-16 to 17.3 percent in 2023-24.
Exports plummeted during the ten years period of Make in India. Share of exports in GDP declined from 15.2 percent in 2014-15 to 12.2 percent in 2023-24.
Foreign investment in India plunged. This is despite the fact that India was among few countries which underscored one of the highest global growth. Foreign investment declined by 19.5 percent during the three year period of 2021 to 2023.
Eventually, unemployment skyrocketed. India topped in unemployment in South Asia and South East Asia countries. It hovers around 7-8 percent during 2016-17 to 2023-24 – the period which was proclaimed for the success of Make in India. In contrast, in ASEAN, unemployment inched to slender growth – by 0.98 percent in Thailand, 1.6 percent in Vietnam and 5.2 percent in China.
Unemployment became the core issue in 2024 general election in India. It has been alleged as one of the major issues for Narendra Modi losing its charisma and BJP losing majority in Lok Sabha
This rising alarm over the failure of Make in India cautioned the Modi government.. Eventually, Government prompted for job creation incentive in the Fiscal Budget for 2024-25. Incentives will be given to the employers to expand employment opportunities. Sarcastically, it has been argued that how an employer can increase employment without expansion in manufacturing. Virtually, India would be the first nation to introduce job creation incentive in the world.
In contrast, South East Asia emerged more attractive destination for foreign investors to reap the windfall of China+1 strategy. Foreign investment (FDI) in ASEAN increased by 10.7 percent in 2023 over 2021. The trigger in FDI was due to massive investment shift by USA. It spurred by 125.3 percent in 2023 over 2021. The mega share of US investment in ASEAN was diversifying of investment from China under the China+1 strategy.
Eventually, ASEAN global exports boomed, despite COVID 19 problem. ASEAN exports surged by 14.9 percent in 2022 over 2021. Here also, USA became the trigger, being the biggest export destination, followed by EU. Exports to USA spurred by 13.5 percent in 2022 over 2021, followed by exports to EU, which increased by over 15 percent during the same period.
Then, why has India failed to reap the benefits of China+1 strategy? The crucial issues were India failing in the race to South East Asia and embargo on Chinese investment.
Over the ten year period, supply chain emerged the major global manufacturing template. It accounts for 40 percent of world trade. Its disruption due to COVID 19 caused a major deterrent to global manufacturing.
China has been the world factory for supply chain manufacture and hub for world trade. The COVID 19 pandemic inflicted a haemorrhage to China manufacturing, which led world growth plunged. World GDP growth declined to 3.2 percent in 2022, from 6 percent in 2021.
Till COVID 19, India focused on Make in India. This represented domestic production – from beginning to end – neglecting the priority on supply chain production in consonance with global trend. It was PLI scheme, which inducted the initiative of supply chain manufacturing and global integration.
Besides, embargo on Chinese investment became major deterrent to the diversification of foreign investment to India from China. To this end, sudden downfall of USA investment in India is a case in point. USA MNCs in China were reluctant to shift to India since their Chinese supply chain manufacturers were barred to enter India.
This is despite the fact that USA and western assemblers viewed India a better destination for manufacture than China. Even though India is lagging behind China in critical components manufacture, they preferred India for long term benefits.
To this end, India’s recent volte face to Chinese investment raises hope for India’s resurgence for foreign investment destination. Finance Minister Nirmala Sitharaman supported Economic Adviser’s suggestion to focus on Chinese investment in India in Economic Survey 2023-24.
India achieved high growth in electronic and automobile industries. But the growth relied more on imports from China. With the ease of Chinese investment in India, India is likely to be more attractive destination for foreign investment in these industries with lesser dependence on imports. .If the Indian government allows Chinese investment sorting out the security concerns, that will be a boost for Make in India programme. (IPA Service)
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