India's Trade and Investment Strategy with China

Background

• In 2019, India opted out of the Regional Comprehensive Economic Partnership (RCEP), a trade agreement involving 15 Asia-Pacific countries, due to concerns over China.
• In April 2020, India's FDI policy was amended to require government approval for investments from countries sharing a land border with India, again influenced by concerns about China.

Current Trade and Investment Climate

• Trade between India and China has grown significantly, with imports from China reaching $131 billion in 2025-26.
• China accounts for approximately half of India's non-oil goods trade deficit.
• FDI from China to India has been relatively small, totaling just $2.5 billion since 2000.
• Recent approval of a joint venture between Dixon Technologies and Vivo Mobile aims to boost electronic device and smartphone manufacturing in India.

Strategic Developments

• India has not substantially benefited from the diversification of multinational companies away from China, with Vietnam gaining more from this shift.
• The Economic Survey 2023-24 suggests India should encourage greater FDI from China rather than integrate deeply with its supply chains.
• In March 2023, changes to the FDI policy were approved to ease investment from border-sharing countries, promoting greater inflows.
• Customs duties were waived on 85 goods used in manufacturing batteries, display assemblies, etc., to enhance domestic manufacturing.

Considerations and Balance

China is a crucial part of the global manufacturing supply chain and a significant source of FDI, focusing on greenfield projects, manufacturing, energy, and infrastructure, especially in developing economies.

While India has strategic and security concerns, economic imperatives necessitate a balanced approach.

• The domestic manufacturing ecosystem should be strengthened with increased value addition.
• Efforts should be made to integrate more closely with global supply chains through a careful and calibrated strategy.