India saw limited success in tapping China Plus One strategy, NITI Aayog says

Growing friction between the US and China is derailing global trade, increasing costs, and delaying production, presenting challenges and opportunities for India, policy think tank NITI Aayog said, while stressing that New Delhi has seen limited success so far in capturing the “China Plus One” strategy.

The “China Plus One” strategy reflects a shift where global companies diversify their manufacturing away from China to include other countries, a response to geopolitical tensions and supply chain disruptions.

The US has implemented stricter export controls and higher tariffs on Chinese goods to limit China’s growth and expenditure towards technological progress, prompting Beijing to respond with reciprocal measures.

These actions have fragmented global supply chains, prompting multinational firms to seek alternatives to Chinese manufacturing, and presenting India with both challenges and opportunities, the planning body said in its latest Trade Watch quarterly.

While New Delhi has to navigate the disruptions in the global supply chain, and be wary of China dumping its products, India is seen as an attractive destination for companies looking to shift their manufacturing bases out of China.

This shift offers India a chance to enhance its domestic manufacturing capabilities, particularly in high-tech industries, the NITI Aayog said.

While India presents an attractive alternative, it faces competition from Southeast Asian nations like Vietnam and Thailand, which have capitalized more effectively on the “China Plus One” strategy due to factors such as lower labor costs and favorable trade policies, NITI Aayog said.

The NITI Aayog report comes on the heels of US and China entering into a fresh trade war. The US last week announced export curbs on computer chip-making gear, software, and high-bandwidth memory chips, to which China retaliated this week by banning exports of gallium, germanium, antimony, and other key high-tech materials to the US.

Trade policies under US president-elect Donald Trump may be a potential economic boom for India,  NITI Aayog chief executive officer B.V.R. Subrahmanyam said in a press briefing .

“Whatever Trump has announced so far…there are opportunities. We are the man at first slip. The ball is coming in our direction. Whether we hold the catch or drop it is for us to decide,” Subrahmanyam said, using cricketing analogy.

“There will be huge disruption, and if we prepare for it, there will be a massive boom due to trade diversion,” he said.