Why this?
The Indian government is exploring the possibility of allowing Chinese investments in high-tech electronics on a case-by-case basis. Impact of this move on India’s economy is something you will read multiple times till the exam. But not reading the specifics will lead to a place where you would be writing generic answers. It is important to understand that this topic needs to be understood in the context of Make in India initiative. By diving into the concept of the Indianisation of the economy, we’ve analyzed how these investments could influence India’s future trajectory and shape its industrial landscape.
GS Paper 1:
Economic Geography and India’s Industrialization
Note4Students: Analyze how India’s geography, infrastructure, and natural resources influence its manufacturing capabilities. Explore how reliance on global supply chains and regional disparities affects the Indianization of the economy.
Microtheme: Secondary Sector
GS Paper 2:
Governance, Policies, and Foreign Investment
Note4Students: Examine the constitutional and policy-related challenges in balancing foreign investments, particularly from China, with national security and economic sovereignty goals like Atmanirbhar Bharat and Make in India.
Microtheme: Neighbourhood
GS Paper 3:
Indian Economy, Industrial Policy, and Global Competition
Note4Students: Assess the impact of global competition and domestic constraints on India’s industrial policies. Critically analyze the role of government interventions such as the PLI scheme in strengthening India’s position in global supply chains.
Microtheme: Industrial Policy
GS Paper 4:
Ethics in Economic Policy and Foreign Investment
Note4Students: Consider the ethical challenges of allowing foreign investments from politically sensitive countries. Reflect on the balance between economic pragmatism, national interest, and the ethical responsibility of ensuring transparency and fairness in decision-making.
Microtheme: Utilization of public funds
Reasons for this move?
- Pressure from Indian Industry: Indian companies, particularly in electronics, are urging the government to relax restrictions on Chinese investments to access advanced technology and boost domestic production.
- Technological Expertise: China has expertise in critical areas such as AC compressors, display panels, and semiconductors—technology that is not easily available from countries like South Korea or Taiwan.
- Boost to Domestic Manufacturing: The government is focusing on investments that can significantly enhance India’s domestic component manufacturing and reduce reliance on imports.
The dilemma between ‘Make in India’ and China’s presence:
| Aspect | ‘Make in India’ Initiative | China’s Presence in India |
| Objective | To develop India as a global manufacturing hub, reduce import dependence, and boost domestic industries. | Dominates India’s smartphone market, with 4 out of 5 top-selling brands being Chinese, controlling 50%+ market share. |
| Policy Support | Production Linked Incentive (PLI) scheme to attract investment and boost large-scale electronics manufacturing. | Chinese companies are taking advantage of PLI schemes by setting up local production and adapting to regulations. |
| Government Allocations | Union Budget 2024-25 allocates ₹6,125 crore for electronics manufacturing and ₹1,148 crore for R&D. | Chinese firms have operated in India for over a decade, becoming major players in electronics production. |
| Self-Reliance (Atmanirbhar Bharat) | Focus on reducing dependence on foreign imports, promoting indigenous innovation and local talent. | Chinese companies continue to integrate into India’s supply chain, although India is pushing for more local ownership and manufacturing. |
| Employment and Localization | Aims to generate local jobs by encouraging domestic manufacturing and R&D in critical sectors. | Chinese companies have adapted by hiring Indian executives, local production staff, and collaborating with Indian partners. |
| Political and Economic Concerns | Anti-China sentiments post-Galwan conflict, push to boycott Chinese products, and reduce Chinese investments. | Despite anti-China rhetoric, Chinese companies remain critical to India’s smartphone market and supply chain. |
| Strategic Alliances | Exploring partnerships with Taiwanese firms to further reduce dependency on Chinese manufacturers. | Chinese companies continue to seek opportunities within India despite increasing government scrutiny and regulatory challenges. |
| Technological Advancements | Encourages domestic innovation, particularly in the smartphone and IT sectors, to build a competitive edge. | Chinese firms bring advanced manufacturing techniques and technological expertise, raising concerns about reliance on foreign innovation. |
| Long-term Vision | Envisions a self-reliant India with home-grown companies leading major industries. | China continues to leverage its scale, efficiency, and market dominance in India, posing a challenge to India’s self-reliance efforts. |
#Indianisation of the economy
A shift in economic policies and practices aimed at promoting domestic growth, reducing dependence on foreign products, and fostering a self-reliant and culturally integrated economy.
Challenges to complete Indianisation:
| Challenge | Description | Example |
| Lack of Advanced Technology | India lacks cutting-edge technology and innovation capabilities, especially in sectors like electronics and semiconductors. | The absence of a domestic semiconductor industry forces dependency on countries like Taiwan, South Korea, and China. |
| Dependence on Global Supply Chains | Many critical components are imported, making self-reliance difficult without domestic supply chains. | India’s smartphone production is heavily reliant on Chinese imports for critical components like chips, circuits, and cameras as evident during COVID-19 pandemic. |
| Insufficient Infrastructure | Underdeveloped infrastructure in logistics, power, and manufacturing hinders competitiveness. | Despite the PLI scheme for electronics, India lacks adequate manufacturing infrastructure. India’s power shortages and logistics inefficiencies further impede large-scale manufacturing. |
| Skilled Labor Shortage | Lack of adequately skilled workers in advanced manufacturing sectors. | India lacks the required skilled workforce to work in high-tech manufacturing sectors like semiconductor fabs and precision electronics manufacturing. |
| Investment and Capital Constraints | High investments needed for infrastructure and technology development. | The Union Budget 2024-25 allocated ₹6,125 crore to electronics manufacturing under the PLI scheme, but the total investment would require tens of billions of dollars. |
| Quality and Scale Issues | Difficulty in achieving consistent product quality and scaling production efficiently. | Apple relies on Foxconn, a Taiwanese company, to manufacture iPhones in India, and high-end product lines are still manufactured in China due to India’s lower scale and quality consistency. |
| Regulatory and Policy Hurdles | Bureaucratic delays and complex regulations slow down investment in manufacturing. | The World Bank’s Ease of Doing Business Report ranked India 63rd in 2020. Red tape and complex approval processes have deterred some foreign manufacturers from investing in Indian factories. |
| Competition from Foreign Firms | Established foreign firms, especially Chinese, dominate sectors like electronics due to cheaper production. | Chinese companies dominate India’s smartphone market with a combined market share exceeding 50% by 2023. |
| Geopolitical and Trade Relations | Disrupting trade relations with countries like China can cause supply chain bottlenecks. | Following the Galwan Valley clash in 2020, restrictions on Chinese investments led to delays in projects and affected industries heavily reliant on Chinese imports, particularly electronics and telecom. |
| Consumer Preferences | Consumers are accustomed to affordable, feature-rich products from foreign brands. | Chinese smartphones like Xiaomi and Realme are popular due to their affordability and advanced features. |
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