Hailing ‘China Plus One’ Strategy, Foreign Brokerages Show Confidence in India’s Economic Resilience

The ‘China plus one’ strategy is being recognised as one of India’s major economic strengths, with brokerage Nomura becoming the latest in a number of global analysts acknowledging the country’s growing economic heft.

‘China plus one’ refers to the decision of several economies, including the USA, to look for markets outside of China for sourcing critical raw materials and for establishing manufacturing facilities. This follows China’s weakening position in global trade and simultaneous de-risking by many economies after Covid-19 disrupted global supply chains.

As the global manufacturing and sourcing dependence on China decreases, countries such as Vietnam and India, which offer competitive labour costs, are emerging as beneficiaries.

The robust ‘Make in India’ initiative has already seen US chip giant Micron’s multi-billion-dollar investment in India. American car maker Tesla and VinFast, a Vietnamese car manufacturer, are also believed to be negotiating with some state governments to establish manufacturing facilities in the country. Taiwanese chip company Foxconn, which parted ways with Indian partner Vedanta earlier, is on track to build a facility in India and is believed to have zeroed in on another local partner. The government is encouraging overseas manufacturers through a combination of sectoral production linked incentive schemes, fast project clearances and improved logistics.

So, it is no surprise that analysts at Nomura have raised India’s rating to ‘Overweight’ from ‘Neutral’ in their latest analysis and one of the factors cited for this upgrade is the country’s ‘China plus on’ strategy. While Nomura analysts have pointed to a weakness due to recent increase in global crude prices, the positives of India’s economic potential and the short-term nature of risks due to high oil prices have been factored in. Nomura’s confidence follows a similar rating upgrade by brokerage Morgan Stanley last month.

This brokerage had pointed to India’s resilient macro indicators, sustained GDP growth and improved export infrastructure. Another factor, which has led to India’s rating upgrade is its demographic dividend, with more young people coming into the workforce each year than in China. Morgan Stanley has also made a mention of increasing digitisation of the economy and vast improvements in India’s supply-side infrastructure among the factors which were considered before recommending an upgrade.

Earlier this month, Moody’s had raised India’s growth forecast to 6.7% for calendar year 2023 from 5.5% earlier due to robust domestic demand and weak possibility of any further increase in lending rates. Of course, the battle with inflation has prevented the Reserve Bank of India from lowering rates and any negative effects of a poor monsoon and elevated food prices may impact India’s GDP growth next year. For now, the economic report card is all green.