Shafaqna India: India’s push to become a global manufacturing powerhouse has hit a roadblock: to truly rival China as a destination for international firms, India may need to improve its relationship with its long-time competitor.
Relations between the two most populous countries in the world have been tense since a deadly border clash in the Himalayas in 2020, which has hampered the flow of capital, technology, and talent, despite surging demand for electric vehicles, semiconductors, and artificial intelligence.
During this period, the Modi government increased scrutiny on Chinese investments, effectively deterring billions of dollars from companies like BYD and Great Wall Motor and imposing additional bureaucratic hurdles for Indian firms with Chinese stakeholders.
Now, as businesses struggle to scale up manufacturing despite government incentives to boost local production, New Delhi is reconsidering its stance and seeking to ease some of these restrictions.
“There is a realization that you cannot be part of any major supply chains, especially in high technology products and areas like solar cells or EVs, without integrating with Chinese supply chains,” said Sushant Singh, a lecturer at Yale University and former researcher for Indian public policy think tanks.
Even businesses that previously supported restrictions on Chinese imports now recognize the necessity of key components from China. Naveen Jindal, head of Jindal Steel & Power, India’s largest steel firm, and a federal lawmaker, has advocated for tariffs on Chinese steel but also acknowledges the need for a practical approach to trade. “Many steel companies import equipment and technology from China,” he said, highlighting China’s dominance as the world’s largest steel producer.
After four years of restrictions on Chinese investments and visas, Prime Minister Narendra Modi’s government is shifting its approach, aiming to revive its “Make in India” initiative. “The government is considering easing investment rules introduced in 2020 for countries with which India shares a land border, as we need more investments,” an official involved in government discussions told Reuters.
To facilitate investments, New Delhi plans to introduce a new clause allowing companies with up to 10% Chinese shareholding to invest in India without requiring government approval. This move could benefit global companies with supply chain partnerships involving Chinese firms.
To address security concerns, the government also plans to establish a post-investment monitoring framework led by crime and fraud investigation agencies and the banking regulator. This step is seen as crucial for attracting more Chinese investment, which analysts consider essential for India’s integration into global supply chains in sectors like solar cells, electric vehicles (EVs), and battery manufacturing.
Modi’s office is still pushing the proposed easing of rules, with some disagreements between government ministries being resolved, according to another official. Meanwhile, India has already relaxed visa issuance for Chinese nationals and expedited approvals for Chinese engineers working in sectors receiving federal subsidies for local manufacturing. Nearly 2,000 short-term visas have likely been approved for Chinese professionals between November last year and July this year, according to another government source.
Pankaj Mohindroo, head of the Indian Cellular and Electronics Association, noted that while there is now “rationality” in the visa process, this shift has yet to translate fully into practice. Indian Foreign Minister Subrahmanyam Jaishankar recently stated that India is not “closed to business from China” but emphasized that the terms and sectors of such engagement remain a point of consideration.
After the 2020 border clash, India swiftly approved joint ventures between Apple’s Chinese suppliers and Indian firms, helping the tech giant relocate 14% of its global iPhone assembly to India in the fiscal year 2023/24. During the same period, India’s mobile exports surged by 42% to a record $15.6 billion.
However, concerns remain about whether India’s factories are capable of matching the scale and efficiency of their Chinese counterparts. Chief Economic Adviser V. Anantha Nageswaran noted that India inevitably needs to connect with China’s supply chains, either through direct imports or Chinese investments.
A sharp decline in foreign investment into India has also prompted the government to reconsider its trade barriers. Despite political tensions, demand for Chinese goods in India remains strong. Since the 2020 border clash, goods imports have surged by 56%, and India’s trade deficit with China has nearly doubled to $85 billion. China remains India’s largest supplier of goods, including industrial products.
“We would benefit from some Chinese investment and technology flowing into our country without compromising national security concerns,” said Mohindroo.