India’s Strategic Need for Economic De-Risking from the PRC
Introduction The PRC is India’s second-largest trading partner, only falling behind the United States, with Indian imports from the PRC having set a new high of $136.2 Billion and the trade deficit rising by 21% in FY 2023 in comparison with FY 2022. Though the bilateral trade has surged, there are a lot of complications not just in terms of interdependence with the PRC but also in safeguarding the national security of India. In this article, the author has attempted to analyze the People’s Republic of China (PRC) as an indication of India’s need to diversify its trading partners. The article discusses India’s initial efforts in this regard, as well as how other countries can view India as a viable alternative in the global production and supply chain network. Therefore, to reduce the dependence on the PRC, there is often a debate between de-risk and de-couple adoption strategies from the PRC. However, the line of differentiation between decoupling and de-risking is still gray in reality. Let’s debunk the balance between de-risking and decoupling- Decoupling vs De-risking Decoupling refers to a complete economic separation, that is, entirely eliminating trade, investment and migration, between the two or more countries. It is an abrupt act of disentanglement that causes an exponential increase in the economic cost and further severs the diplomatic ties between the disentangled countries. On the other hand, de-risking is based on mitigating risks associated with economic engagement by diversifying the supply chain and production. As pointed out by the Director General of the World Trade Organization, Ngozi Okonjo-Iweala, de-risking can also be viewed through the lens of the ‘re-globalization approach’[i] (deeper, more diversified, and deconcentrated international markets). This follows ‘interdependence without over-dependence’ to attain greater economic security along with safeguarding one’s strategic autonomy from a ‘systemic rival’ like the PRC which challenges the Western ecosystem from time to time. However, full-scale decoupling from the PRC is not possible in reality because the Indian economy and the PRC markets are highly interlinked and it will majorly lead to adverse effects in the global economy as these two Asian giants are pivotal for the global economy. Accordingly, diversification (de-risking) with a strategic preference for mitigating risks is the ideal and exclusive route rather than cutting off economic relations with a country. Steps Taken by Some Companies to De-risk from the PRC Some companies have implemented strategic measures to reduce their reliance on manufacturing in the PRC, including diversifying their supply chains and investing in alternative production facilities in other regions. These steps aim to mitigate geopolitical and economic risks while ensuring continuity in their operations. For instance, Foxconn, the Taiwanese Electronics Company, is a key supplier in Apple’s iPhone manufacturing operations and has significant manufacturing units located in the PRC. The Covid-19 added to the woes of the company with mistrust, miscommunication, lockdowns, large-scale labor unrest, security issues and severe logistical challenges. As the demand for iPhones increases worldwide and manufacturing centres are primarily in one country, the risks of excessive reliance on the PRC become apparent. This gave The company varied reasons to diversify its supply chains. Thus, Apple Inc. strategized to de-risk from the PRC which meant shifting its operations and diversifying its supply chains outside the PRC. One major reason after Covid-19 was ‘Fat tail risk’ i.e. a low-probability, high-impact event that can significantly disrupt the global order or cause widespread instability. These events are difficult to predict due to their rarity and often fall outside traditional risk assessments and this rarity can be often seen in authoritarian regimes. The Russia-Ukraine war was unexpected and uncertain for the global markets and it impacted many critical supply chains that were not even geographically connected. This highlights that authoritarian regimes can be highly dicey with their unanticipated events disrupting the political and business ecosystems. Another reason is the tensions between Taiwan and the PRC that prompted Apple Inc. to speed up its de-risking process. Apple Inc. sources 90% of Wafer production (ultra-specialized chip fabrication processes) from TMSC (Taiwan Manufacturing Semiconductor Company). According to Asia Nikkei (2022), Apple Inc. has asked Taiwan suppliers to label these components which constitute 50% of the global market supply as made in “Chinese Taipei” or “Taiwan, China” which suggests that Taiwan is a part of the PRC. On mentioning “Made in Taiwan” i.e., not complying with the PRC import rules then it can lead to delays, fines and even rejection of entire shipments under the rule. And Apple Inc.’s choice to deny Taiwan’s independent existence brought worldwide criticism. The third reason is that the PRC, in Sep 2023, ordered its government officials to discontinue working with Apple’s iPhones and were directed not to bring these devices into the offices due to cyber security concerns. In the same year, the PRC banned the usage of memory chips made by Micron citing the same reason. This move by the PRC led Micron’s net income of $8.68 billion in 2022 to convert to a net loss of $5.83 billion in FY 2023. Apple Inc. generates $74 billion in revenue from the PRC which is roughly 19% of its total revenue. However, the PRC’s uncertain decisions and the risk of such bans lingered over Apple Inc.’s goals due to which the company started de-risking gradually from the PRC. Thus, all these complexities led Apple Inc. to turn its head towards setting up new manufacturing capacities in Vietnam for the production of MacBooks, iPads, and the Apple Watch. It has been estimated that Vietnam will meet 40% of the United States’ capacity for these three products. Along with that Foxconn is making India a manufacturing hub by setting up units in Tamil Nadu and Karnataka to assemble iPhones and expects to expand its production to 20% – 25% in 2024. Hence, these companies have opted to pursue additional de-risking strategies as their sole pathway forward. Steps Taken by India to De-risk from the PRC Coming to India, India’s economic ties with the PRC in major strategic sectors such as electronics,






















