Why India will tilt the US way to gain from friend-shoring trend

US-China

India has raised its geopolitical heft in recent years, which has helped it maintain its historic unaligned stance in tensions between the US and Russia.

Still, in the major geopolitical divide of the next decade, the one between the US and China, India is likely to come off the fence and align with the US given its shared security interest with America in limiting the power and influence of China and as it stands to gain from companies that want to move their supply chains away from the Asian giant.

“India is well-positioned to benefit further from the 'friend-shoring' of manufacturing supply chains if it shifts towards the US,” Shilan Shah, Deputy Chief Emerging Markets Economist at Capital Economics, said in an investor note on April 20.

Shah cites Apple’s decision late last year to relocate more of its manufacturing from China to India, something that is beginning to bear fruit. The iPhone production in India trebled in the year to March. Moreover, the high-profile meeting between Apple chief executive Tim Cook and Prime Minister Narendra Modi this week raises hopes of a further strengthening of ties, he added.

The power tussle

The US has emerged as India’s largest trading partner in the last financial year, trumping China, imports from where were the highest. India has been in a border faceoff which its larger neighbour since 2020 at the contested land border with China.

The US and China are engaged in a conflict at various levels as Beijing seeks to be the apex global power, displacing Washington. The US has curbed shipments of high-end chips to China and seeks to shelter Taiwan, on which Beijing lays a historical claim.

China has rebuffed attempts by US President Joe Biden administration to restart high-level talks and lower tensions over Taiwan, according to reportage by The New York Times.

The power tussle is ratcheting up tensions in the region, with an arms race starting in the Indo-Pacific. Though India imports a majority of its arms from Russia, which itself is engaged in a shadow war with the West, New Delhi has entered into a strategic partnership with US, Australia and Japan.

On the other hand, Chinese President Xi Jinping is growing his influence in the Middle East and is winning new admirers, from France’s President Emmanuel Macron to Brazil’s Luiz Inácio Lula da Silva.

Indian prospects

Amid the raging geopolitical power shifts, prospects for India’s economy over the long term are more promising than for most major economies, Capital Economics’ Shilan Shah said.

“Its demographic potential is immense: India is now the world’s most populous nation and will replace China as home to the world’s largest labour force within the next couple of years. And in a fracturing global economy, India is a prime candidate to benefit from the 'friend-shoring' of manufacturing supply chains given its large labour supply, low costs and progress (albeit gradual) on structural reform,” he said.

Despite New Delhi’s preference to remain unaligned geopolitically, it is likely to lean towards a US-led bloc in a fracturing global economy.  Apple shifting more of its manufacturing into India could prove pivotal, particularly if it helps to form an ecosystem of suppliers or encourages other multinationals to follow suit.

Also read: Why India is critical to Apple's future plans: Key factors driving the much-delayed bonhomie

India’s already efficient payments system could create a burgeoning online business ecosystem. It must be noted that the US and India recently signed a pact to strengthen cooperation on developing semiconductor supply chains, including by sharing technology, research and development and labour.