Context

• In January 2023, India surpassed China to become the world’s most populous country with a population count of approximately 1.417 billion as against China’s 1.412 billion, as estimated by the World Population Review (WPR). This creates both opportunities and challenges for India.

Crack Prelims 2023! Talk to our Rankers

The global turmoil and China as enablers of the Indian growth story

• There are three factors that have enabled the Indian growth story.
• Overdependence on specific economies: If the pandemic had had one crucial lesson for the global economy, it must be reducing the overdependence on China-specific Global Value Chains (GVCs). As is evident from the pandemic, the subsequent Ukraine-Russia war or the recent disastrous COVID-19 surge in China the overdependence on specific economies is bound to have cascading effects on the world economy because of the macroeconomic shocks they produce.
• Glocalised models of economic partnerships: Countries now strive to strike the right balance between globalisation and localisation, through bilateral and multilateral platforms characterised by leveraging sub-regional comparative advantages. To a large extent, these emerging forms of glocalised models are also based on controlling Beijing’s political and economic prowess in the Indo-Pacific and beyond, where India plays an active role.
• Use of technology: There is no doubt that the pandemic has provided an uptick in the use of technology ranging from the provision of social security payments at the grassroots to government-level conferences.

China plus one (C+1) strategy

• The US-China trade war and the pandemic-induced supply chain disruptions emanating from China have indeed paved the way for many western corporates to consider a China Plus One (C+1) strategy.
• The strategy would entail diversifying investments from China to other countries, to mitigate the economic and geopolitical risks associated with the former.
• While many also hail Vietnam as another economy to be in the race of attracting investments fleeing China, India could be the potential frontrunner in the C+1 game.

Why makes India to surge ahead in C+1?

• India’s economic advancement: India has a demographic advantage over China, with a larger percentage of its population under 30. This young population is expected to drive consumption, savings, and investments, leading to India’s goal of a multi-trillion dollar economy.
• Low cost of labour is an advantage: India has a low cost of labor and other forms of capital, making production costs lower and increasing competitiveness in international markets. India’s labor cost is also half that of Vietnam, making it a strong player in electronics and semiconductor manufacturing.
• India’s heavy infrastructure investment: A heavy investment in physical infrastructure through the National Infrastructure Pipeline (NIP) is expected to reduce costs in manufacturing sectors and cut transportation time and costs by 20%. This is in contrast to China, where multiple companies handle different parts of the transportation process, increasing costs
• India’s conducive business environment: Recent policy interventions in India such as the Production Linked Incentive (PLI) scheme, tax reforms, liberalization of FDI policies, setting up of land pools and organizing business summits have helped attract investments to the domestic economy. These efforts, driven by the Make in India initiative, have also been supported by efforts to promote competitive federalism and reduce transaction costs of doing business.
• India’s digital advantage: India’s high internet penetration at 43% allows for digital skilling initiatives to bring returns across various economic sectors, particularly services. A combination of home-grown technologies and greater access to Google and Facebook, which are banned in China, gives Indian youth a digital edge.
• As English is the second language provides ease of communication: the prevalence of the English language skill set in the young Indian populace undoubtedly puts India ahead of China. As English is the second official language in the Indian states, it provides business executives with ease of communication in conducting business with North American and European clients.
• Well balanced economic partnerships: India’s economic partnerships are characterized by utilizing sub-regional comparative advantages and controlling Beijing’s political and economic power in the Indo-Pacific. India’s decision to not join the RCEP in 2020 to protect its domestic market and curb trade deficits sends a strong signal of its disassociation with Beijing in trade partnerships. The CEPA signed with the UAE in 2022 is expected to increase two-way trade to $100 billion in five years by opening access for Indian exporters to Arab and African markets.
• Dynamic Indian diplomacy: India has strengthened its economy through diplomatic partnerships and trade agreements, such as the QUAD, I2U2, and agreements with Australia, Canada, the European Union, and African countries. These partnerships have provided Indian businesses with greater access to finance, technology, and new markets. As India assumes the presidency of the G20 and the Shanghai Cooperation Organization this year, it is well-positioned to navigate changing globalisation trends and be a strong voice for the Global South.
• Most important is the large domestic market: India’s large domestic market with a population of 1.3 billion and increasing incomes at 6.9 percent per annum offers a competitive alternative to China’s massive domestic market. With a population base of 98 million, Vietnam’s market is much smaller in comparison.

Conclusion

• Indian economy that has risen from the ashes like a phoenix after a year of negative growth caused by the pandemic-led lockdown. India’s 74th Republic Day, therefore, should not merely mark a remembrance of the past or a celebration of adoption of the world’s largest and most comprehensive constitution, but should also be a celebration of the dazzling future of a roaring economy that will show light to a dreary world.

Mains question

Q. What is China plus one (C+1) strategy? Discuss why it is said that India will surge ahead in C+1?

(Click) FREE 1-to-1 on-call Mentorship by IAS-IPS officers | Discuss doubts, strategy, sources, and more

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now