India’s manufacturing sector

India’s manufacturing sector

Context: This editorial discusses about India’s growing dependence on Foreign nations for manufacturing. It highlights how India relies on countries especially China for key materials.

What is the impact of over-reliance on Foreign nations (mainly China) on manufacturing sector in India?
 India’s industrial sector trade deficit with China reached $84.4 billion in 2022, a 27% increase from 2021, highlighting growing reliance.
 India’s dependence on China is more complex due to global value chains; parts and components are often sourced from multiple countries.
 On average, 23% of India’s foreign-sourced manufacturing inputs are indirectly from China, revealing a deeper reliance than apparent at first glance.
 India’s reliance on Chinese inputs has risen sharply from 5% in 2000 to 23% in 2022, indicating growing vulnerability.
 Key Indian sectors like basic metals, transport, and electrical equipment are significantly dependent on foreign, especially Chinese, inputs.

Which research method was utilized to figure how much a country relies on foreign inputs in manufacturing?
 The analysis follows the methodology used by Richard Baldwin, focusing on the interdependencies in manufacturing sectors.
 Utilizing OECD Input-Output Tables: The research employs input-output tables from the Organization for Economic Cooperation and Development (OECD) to track the flow of products between countries.
 Measuring Face-Value Exposure: It considers the direct origins of intermediate products used by a country’s manufacturing sector, like India’s electronics sector sourcing from Vietnam.

What is the need of the hour?
 To reduce dependency, India should diversify its manufacturing inputs, source from various countries, and possibly attract foreign investment. 
 It will mitigate risks evident from the high trade deficit and growing indirect reliance on China, as seen in sectors like metals and transport equipment.