New Delhi/Beijing: India is weighing the possibility of strengthening economic ties with China as tensions along the border ease. This consideration comes at a time when the U.S., under President Donald Trump’s administration, is pressuring New Delhi to lower tariffs and comply with Washington’s trade terms.
Sources indicate that government departments are reviewing restrictions on trade and investment imposed after the 2020 Galwan Valley clashes. Discussions are ongoing to determine potential relaxations, balancing economic engagement with strategic priorities.
Potential Policy Shifts
Industry representatives have pushed for several key economic measures, including easing visa restrictions for Chinese personnel, lifting select tariff and non-tariff barriers on imports, and potentially reinstating some previously banned Chinese apps. Additionally, the resumption of direct flights and issuance of visas to Chinese scholars are actively being considered, sources said.
On the investment front, India is exploring the possibility of allowing increased Chinese investments as a countermeasure to its widening trade deficit with China. Despite the existing restrictions, trade flows remain overwhelmingly in China’s favor. New Delhi is weighing adjustments to the 2020 policy requiring central government approval for investments from countries that share land borders with India.
At least two sources aware of the discussions indicated that fostering a more visible dialogue with China on economic normalization could serve as a strategic hedge against U.S. pressure. A recent Finance Ministry presentation reportedly advocated easing certain restrictions earlier in the fiscal year.
Government ministries, including Finance, Commerce, and External Affairs, did not respond to queries on the matter.
Easing Non-Tariff Barriers
One of the major aspects under consideration is the relaxation of Bureau of Indian Standards (BIS) certification mandates for Chinese imports, particularly electronic and IT products, which currently fall under an expanding set of Quality Control Orders (QCOs) issued by the Ministry of Commerce.
“The rapprochement with China on business ties is inevitable, especially in the post-Trump era. It’s just a matter of time, but the exact approach remains a topic of internal debate within the government. The removal of trade and non-trade barriers is a longstanding demand from industry, particularly from small and medium enterprises,” a source said.
Additionally, India may ease its visa policies for Chinese workers and technicians involved in infrastructure projects requiring heavy equipment imports, installation, and operations. Over the years, New Delhi has tightened its scrutiny of visa extensions for Chinese professionals working in India.
A Strategic Signal to the U.S.
A growing sentiment within India suggests that entering a more transparent economic dialogue with China could send a strategic message to the U.S. and act as a balancing measure. Discussions are underway on diluting some of the trade and investment restrictions imposed post-Galwan.
“Since we are already being pushed to reduce tariffs under U.S. pressure, it makes practical sense to ease certain barriers, particularly on inputs and products not widely manufactured in India. While there is no plan to actively incentivize trade with China, removing disincentives is being considered. Indian industry has been vocal about this need,” the source added.
Proposed changes could include lifting outright bans and restrictions on Chinese consignments at Indian ports. Beijing, too, is keen on restoring trade ties with India. Sources indicate that China has proposed increased investment flows from Chinese firms to address the growing trade deficit.
Trade and Investment Landscape
India-China bilateral trade in FY24 stood at $118.40 billion. According to Global Trade Research Initiative (GTRI) data, China once again surpassed the U.S. as India’s top trading partner in FY24 after a two-year gap, accounting for 15% of India’s total imports. India imported goods worth $675.42 billion globally, including $101.74 billion from China.
However, China ranked only 22nd in Foreign Direct Investment (FDI) equity inflows into India, with a cumulative FDI of $2.5 billion from April 2000 to September 2024. Despite soaring trade volumes, investment growth between the two nations has lagged behind. Beijing has expressed interest in increasing investment flows, and New Delhi may accommodate some of these proposals.
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India’s trade deficit with China remains a significant concern, both in size and its continuous expansion. In 2023, the deficit exceeded $83 billion. Two primary factors contribute to this imbalance: India’s limited export basket, which mainly includes primary commodities, and market access barriers imposed by China on Indian agricultural, pharmaceutical, and IT/ITeS sectors.
A recent working paper by the Economic Advisory Council to the Prime Minister (EAC-PM) highlighted that Indian exporters face multiple non-tariff barriers in China, restricting market access for agricultural and pharmaceutical products. An easing of restrictions on India’s side could provide New Delhi with leverage to negotiate better trade terms for Indian goods.
Navigating Strategic Choices
As China grapples with an economic slowdown exacerbated by a domestic housing crisis and Western efforts to diversify supply chains under the ‘China Plus One’ strategy, India finds itself at a crossroads. Policymakers must decide between welcoming increased Chinese investment or maintaining heavy reliance on Chinese imports.
A senior government official noted that a gradual opening to Chinese investments is being considered, primarily to facilitate joint ventures where Chinese firms hold minority stakes alongside Indian partners.
The Economic Survey 2023-24 also suggested that India should encourage Chinese investments in key sectors while discouraging the import of finished goods with minimal local value addition. “Wherever we detect unfair competition from Chinese imports harming domestic industry, we can impose tariffs and safeguard duties. However, where their products fulfill essential needs, we should facilitate trade,” another official explained.
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A December 2024 NITI Aayog report, ‘Trade Watch’, observed that India has had limited success in capitalizing on the ‘China Plus One’ strategy, which multinational companies have adopted to diversify their supply chains.
Recent developments highlight New Delhi’s cautious but pragmatic approach to Chinese investments. Earlier this year, Chinese state-owned SAIC Motors divested its controlling stake in MG Motors, selling it to an Indian investor group led by JSW Group, which now holds 51% of the company. Similarly, Chinese fashion retailer Shein re-entered India after licensing its brand to Reliance Retail, with the latter managing operations.
Outlook
While India remains cautious about over-dependence on Chinese trade, the shifting geopolitical and economic landscape may prompt a recalibration of its approach. Policymakers are weighing a more nuanced stance that balances economic pragmatism with strategic autonomy, ensuring India retains leverage in global trade negotiations while safeguarding national security interests.
