NITI Aayog working on plan to reduce reliance on China for supply chains

India is working on a plan to reduce its dependence on its supply chains in China, according to a report by The Economic Times (ET). The NITI Aayog is working on a strategy to address the trade deficit with China and suggest measures to secure supply chains from geopolitical risks.

A senior government official was quoted as saying that the Aayog will bolster its policy recommendations on tariff and non-tariff barriers. The NITI Aayog will also bring a consultancy firm to review India-China trade as part of the exercise.

The official said that supply diversification was the need of the hour as the dependence on Indian supply chains was highlighted during the Covid-19 pandemic and geopolitical escalations. He added that focused intervention was needed to secure supply chains from disruptions.

A trade study will discern product categories where India has a comparative advantage and a sizable market in China to scale up exports to that country. The study will also look at ways to de-risk India's supply chains. The consultancy will also analyse the type and quantum of foreign investment needed to plug technology gaps.

According to the Aayog, India's merchandise exports to China were at $450 billion while imports were $714 billion, implying a merchandise trade deficit of $263 billion. Amongst its trading partners, India had the highest trade deficit with China in the financial year 2022-2023 (FY23).

Earlier this year, NITI Aayog vice chairman Suman Bery said India should not focus on the overall trade deficit with China. Instead, it should be on reducing New Delhi's dependence on Beijing for certain critical inputs. According to Bery, the right response is to diversify to other sources of supply for critical inputs, including active pharmaceutical ingredients (APIs) and supply chain for renewables.