China's Robots Are Keeping India's Prices Down
The Underrated Reason India’s Inflation Is Low: China’s Ageing Factories and the Global Deflation Loop They Created
India’s inflation has been surprisingly soft this year.
CPI has held steady despite global volatility in oil, shipping, and commodities.
Yes, domestic supply chains have improved dramatically. But there is another, underrated, global force at play. To understand it, you have to look not at Mumbai or Delhi, but at China’s ageing factories.
This is the quiet, structural story behind a large part of global goods disinflation—and one that will shape India’s economic trajectory in the decade ahead.
1. China’s Demographic Shock: The Starting Point
China’s working-age population peaked a decade ago. The country is ageing at a speed normally seen in rich nations - except China is not yet a rich country. This created an unavoidable problem:
Fertility rate ~ 1.1
Shrinking labour pool
Rising manufacturing wages
Fewer young workers entering factories
Europe and Japan faced this problem too, but their answer was slower growth. China chose something radically different: replace missing workers with machines.
2. Why China Turned to Extreme Automation
China didn’t automate because it was fashionable. It automated because it had no other choice.
This is where the Fourth Industrial Revolution - "Industry 4.0" - quietly happened in one country while the rest of the world moved on to talking about AI.
By 2022, China installed:
This is not mere adoption. This is industrial transformation at a scale that ensures:
EVs get cheaper every year
Solar panels crash in price
Battery factories run at breakneck speed
China turned automation into a demographic survival strategy.
3. Automation → Very Low Marginal Costs
Here’s where economics takes over.
When you automate at this scale, the traditional cost structure flips. Fixed costs are high, but the variable cost per unit collapses. The machine must run to pay for itself. This creates a system where factories cannot afford to slow down, even when domestic demand falls.
4. Slowing Demand → Structural Overcapacity
China’s internal consumption is cooling due to its property slump, weak household balance sheets, and cautious consumer sentiment.
But automated factories don’t pause.
This mismatch creates chronic overcapacity in key export sectors: EVs, solar panels, steel, batteries, and consumer electronics. This isn't cyclical - it is structural, the inevitable result of automation, demographics, and sheer industrial scale.
5. What Happens to All That Excess? It Gets Exported Cheaply.
The surplus production spills outside its borders.. at prices competitors cannot match.
This creates the global deflation loop:
6. The India Angle: The Tailwind Nobody Talks About
India’s CPI is lower today for three main reasons: Improved domestic supply chains, strong agricultural buffers, and imported disinflation from global goods prices.
That third point is where China comes in. India benefits because:
EV components get cheaper
Solar equipment gets cheaper
Consumer durables and industrial machinery are kept in check
India benefits from this without doing anything.
It is, effectively, the inflation dividend of someone else’s demographic crisis. Global goods disinflation, partially driven by China, plays a real role in keeping India’s CPI soft.
To be clear, this tailwind complements, not replaces, India’s own supply-side improvements.
7. The Strategic Implication for India
Here is the uncomfortable part: India’s youth advantage alone is no longer enough.
We are no longer competing with "China + Cheap Labour." We are competing with "China + Robots + Scale + Low Marginal Cost."
This means India must aggressively accelerate:
Automation adoption across MSMEs
Industrial IoT and logistics modernization
Energy reliability and R&D investment
If we don't increase productivity, we risk getting boxed into the bottom of the value chain. PLI is a start, not a finish line.
8. Industry 4.0 Didn’t Fail - It Just Happened Quietly in China
From the outside, it looked like Industry 4.0 was overhyped. In reality, China executed it in silence while the world focused elsewhere.
China automated to survive ageing. In the process, it created overcapacity, pushed down global goods prices, and gave India a temporary disinflationary gift.
India’s task now is to use this tailwind to strengthen domestic capacity. The inflation dividend is a borrowed opportunity; we must invest it wisely.
Comments