India’s Approach to Boost Manufacturing by Easing Chinese Investments
New Delhi: India, aspiring to transform into a global manufacturing hub, has recognized the need for strategic changes in its approach to Chinese investments. With manufacturing playing a pivotal role in India's economic strategy, especially under the "Make in India" initiative, the country now faces the challenge of balancing national security concerns with economic pragmatism.
In light of the strained relations between the two Asian giants, India is reconsidering its stance on Chinese investments. While the 2020 border clash introduced barriers to Chinese capital, the evolving global supply chain dynamics, particularly in high-tech industries, have necessitated a rethink of these restrictive policies.
Current Scenario: Visa Relaxations and Policy Adjustments
To fuel its manufacturing ambitions, India has taken a significant step by easing visa rules for Chinese nationals. This move, coupled with the potential relaxation of stringent investment policies, signals India’s recognition of the indispensable role China plays in global manufacturing supply chains. Industries such as electric vehicles (EVs), solar cells, and semiconductors, where China has significant expertise, are critical for India’s future industrial growth.
Visa regulations have already seen marked improvement, with nearly 2,000 short-term visas granted to Chinese professionals in key sectors. This reflects a tangible shift in India’s approach toward ensuring talent mobility to meet its manufacturing needs.
The Importance of Easing Investment Rules
Since 2020, India has implemented strict regulations requiring government approval for investments from countries sharing land borders, with China being the primary target. However, in 2024, the Indian government is revisiting this policy, recognizing that creating barriers to Chinese capital has impeded the growth of key industries.
One of the proposed changes is the allowance of foreign investments from companies with up to 10% Chinese shareholding, without the need for government approval. This small but significant adjustment could pave the way for increased foreign investments, particularly from global firms with existing Chinese supply chain partnerships.
India’s Dependence on Chinese Supply Chains
While India has historically sought to protect its domestic industries by restricting Chinese imports, reality points to a deeper economic interdependence. India’s trade deficit with China has doubled since 2020, reaching $85 billion, a clear indication of the strong demand for Chinese goods. Whether it is raw materials or high-tech components, Chinese products remain crucial to India's manufacturing ecosystem.
As Sushant Singh from Yale University puts it, “You cannot be part of any major supply chains, especially in high technology products, without being part of Chinese supply chains.” His observation underscores the critical role China plays in global industries, from electronics to electric vehicles. Despite attempts to isolate its economy from Chinese imports, India remains reliant on Chinese technology and products.
The Role of Technology in Strengthening Indian Manufacturing
India’s ambition to become a global manufacturing powerhouse cannot be achieved in isolation. In key industries like EVs, solar technology, and semiconductors, China’s role is unavoidable. Naveen Jindal, chairman of Jindal Steel & Power, emphasizes that despite the competitive nature of India’s steel industry, there are certain areas where Chinese expertise and technology are essential.
India’s growth in technology-intensive sectors is contingent on its ability to integrate itself into global supply chains, and, in many cases, that means partnering with China. For instance, China remains a critical player in the global solar industry, accounting for a significant share of global solar panel production. Similarly, in the EV sector, Chinese companies lead in battery technology, making their participation in India’s growth journey crucial.
Security Concerns and Post-Investment Monitoring
While the potential relaxation of investment rules signals a strategic shift, India remains cautious about national security. The government is planning a post-investment monitoring framework involving agencies such as crime and fraud investigation bodies and banking regulators. This approach aims to ensure that Chinese investments do not pose a risk to India’s national security while enabling much-needed foreign capital to flow into high-tech sectors.
The focus on high-level oversight over Chinese investments ensures a balanced approach, where India can still benefit from Chinese expertise without compromising its sovereignty or security interests.
The Future of Chinese Investments in India
The ongoing policy revisions suggest that India recognizes the inevitable need to partner with China in certain industries, even as both countries navigate their complex political relationship. Whether India opts for increased Chinese imports or strategic investments, it is clear that complete economic isolation from China is neither feasible nor beneficial.
India’s Chief Economic Advisor, V. Anantha Nageswaran, acknowledged this when he stated, “It is inevitable that India will need to plug into Chinese supply chains.” This insight reflects the broader realization within Indian policy circles that long-term economic growth, particularly in high-tech manufacturing, cannot be achieved without engaging China.
Why Easing Chinese Investments is Critical for India’s Success
India's ability to attract and accommodate foreign investment is integral to achieving its ambitious goals in the manufacturing sector. Recent developments show that India is positioning itself as a credible alternative to China for global firms. However, to truly compete with China, India must strike the right balance between protecting national interests and embracing foreign partnerships.
The easing of Chinese investment rules and visa restrictions, combined with a focus on security, could provide the much-needed boost to India's manufacturing sector. The Modi government’s willingness to revisit restrictive policies and facilitate smoother foreign investment flows signifies a pragmatic shift in India’s economic strategy.
In sectors like electronics, where Apple has already moved a portion of its iPhone assembly to India, the country is showing promising signs of becoming a global manufacturing hub. Mobile exports from India surged by 42% in the last year, a clear indicator of the potential that foreign investments can unlock in the Indian economy.
Conclusion: The Path Forward
India’s quest to become a global manufacturing powerhouse hinges on its ability to adapt to the evolving economic landscape. While the political relationship with China remains fraught, the realities of global supply chains and manufacturing demands dictate that a degree of collaboration is unavoidable.
The proposed easing of Chinese investment rules marks a significant step toward strengthening India’s position in global supply chains, particularly in high-tech industries. As India continues to grow and expand its manufacturing capabilities, its ability to attract and manage foreign investments will be crucial.
By finding the right balance between national security and economic pragmatism, India can chart a path toward becoming a true global manufacturing titan—one that competes with, and collaborates with, China when necessary.