India-China Investment Dynamics
The evolving investment relationship between India and China is highlighted by a recent announcement by the Chinese ambassador about a partnership between China's SVOLT Energy and an unnamed Indian company for energy storage projects in Mumbai and Gujarat.
Current State of Bilateral Relations
- Bilateral ties have seen significant variations over the past decade.
- Rebuilding trust between the two nations is seen as a gradual process.
Geopolitical and Trade Context
In light of geopolitical and trade volatilities, both countries have an opportunity to reassess their commercial ties.
Opportunities Arising from Global Supply Chain Shifts
- The COVID-19 pandemic has exposed risks in single-point global supply chains.
- Rising Chinese labor costs have prompted the adoption of a ‘China plus One’ policy.
- India aims to position itself as a neutral, rules-based manufacturing hub.
India's Electronics Industry Strategy
- India's PLI model for smartphones is a proven policy.
- The objective is to scale the electronics industry to $300 billion by 2026 through increased domestic value addition (DVA) and exports.
Potential Role of Chinese Firms
Chinese companies like Haier and Luxshare-ICT can play a significant role in boosting India’s electronics manufacturing through partnerships or joint ventures.
Capitalizing on 'China plus One' Strategy
- India can deepen ties with Chinese supply chains or attract Chinese FDI for manufacturing setup.
- Exclusion is impractical due to global reliance on Chinese supply chains.
- Strategic autonomy in key technologies such as green energy and semiconductors is crucial for India.
Encouraging Chinese Investment
- India could welcome Chinese investments by prioritizing interests and setting clear rules.
- Joint ventures should have Indian majority control, with mandates for tech transfer and local data storage.
- Enforcing transparent transfer pricing and accounting is necessary.
Policy Considerations
India must navigate the policy landscape carefully to address concerns about investment approvals and regulatory challenges faced by Chinese companies.
Strategic Framework and Sectoral Approach
- A ‘red-amber-green’ framework could be employed to assess risks and capabilities, setting clear boundaries for sectors open to Chinese FDI.
- High-risk sectors like 5G infra are excluded, while sectors like battery tech and solar could adopt controlled approaches with incentives.
- The Electronics Component Manufacturing Scheme (ECMS) 2025 aims to benefit from Chinese participation.
Sectoral Development and Strategic Options
- The PLI-plus-DVA approach is WTO-compliant and effective in sectors like smartphones.
- Cluster-led SME development can foster innovation and strengthen domestic value chains.
Conclusion
A pragmatic stance on Chinese investment is recommended, opening select sectors with a rules-based FDI filter while excluding sensitive sectors. This calibrated openness is necessary to attract capability and capital without compromising sovereignty, ensuring that India can advance economically while safeguarding its national interests.
