Economic Survey highlights risks of overreliance on China amid supply chain challenges

India faces "single-source concentration risk" in multiple areas, especially from China, exposing the country to potential supply chain disruptions, price fluctuations and currency risks, the Economic Survey warned Friday, stressing on the need to go "all out" to attract, promote and facilitate local and foreign investments.

The threat is more pronounced as despite its expanding industrial base, India's manufacturing sector remains underdeveloped, contributing just 2.8% of global output compared to China's 28.8%.

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The Survey highlighted that continued reliance on Chinese goods to achieve energy transition goals increases the complexity of the challenge for India especially in the backdrop of New Delhi's ambitious goals for energy transition despite being one of the lowest per capita emitters globally.

It made a case for "acknowledging the elephant (and the dragon) in the room that will have a bearing on growth projections-fundamental shifts in global economic order combined with China's manufacturing prowess and strategic dominance".

GTRI founder Ajay Srivastava said: "China's economic slowdown and overcapacity-driven exports are disrupting global markets, making it critical for India to strengthen its economic framework. Regulatory inefficiencies hinder MSME growth, making compliance reform a top priority."

The Survey said India needs to grow 8% for about two decades to become a developed nation by 2047, but it will have to battle challenges from global developments and reliance on Chinese imports.

This is crucial as the effects of rise of China as a manufacturing behemoth are seen in auto (especially EVs) manufacturing, mining and refining capacity for critical minerals such as copper, lithium, nickel, cobalt and graphite, and in clean energy.

"Although India is trying to develop domestic capacities in most of these sectors, the gap between demand and domestic supply is quite large. The only way out is to attract investors to setup production capacities in these sectors within the Indian economy. This must be the new focus of the Atmanirbhar strategy," said DK Srivastava, chief policy advisor, EY India.