De-risking from China supply chain to take longer than thought, says CEA Nageswaran

Nageswaran was speaking in Mumbai at Indian Institute of Management-Kozhikode’s inaugural annual conference on macroeconomics, banking, and finance.

De-risking economies from the Chinese supply chain is not going to be a quick process for the world and will take much longer than thought, Chief Economic Advisor V Anantha Nageswaran said.

"When we talk of de-risking from China supply chain, we should be under no illusion that it is not something that can be achieved at the speed with which you can put out a tweet. It is going to take much longer," Nageswaran said on February 16 in Mumbai at Indian Institute of Management-Kozhikode's inaugural annual conference on macroeconomics, banking, and finance.

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The chief economic advisor's comments come amid the government's ongoing efforts to become self-reliant and make India a bigger part of the global supply chain. The focus on playing a bigger role in the global supply chain came after the Covid pandemic saw huge disruptions in trade channels, which in turn affected domestic economic activity.

According to Nageswaran, China's involvement in global trade is such that any diversification of supply chains is going to be extremely difficult for other countries. In fact, when countries try to do so, it only results in rerouting of Chinese products.

"Vietnam appears to be playing that role. For example, Vietnam's exports to the US and imports from China have surged since the US-China trade tensions emerged in 2018… At the same time, Vietnam's imports from China went up… And, if you look at the data for Thailand, Mexico, etc, the same story emerges," he said.

Commenting more broadly on globalisation, Nageswaran said he wasn't sure if the world was becoming more fragmented even though the general commentary says that is the case.

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"In terms of global trade volumes, it is very difficult to disentangle the effects of economic slowdown and the fact that there could be trade restrictions, both of the tariff variety and non-tariff variety. Of course, countries are focussing on friend-shoring and re-shoring, all those things are definitely happening. So, it is not that we are in the golden era of globalisation. But, based on trade data, it is difficult to make out the case that we are definitely becoming more fragmented," the government’s top economist said.