Why is it in news?
- India is considering selective easing of restrictions on Chinese foreign direct investment, reviving debate on balancing economic recovery, supply-chain integration, national security, and strategic autonomy.
Relevance
- GS 2 (Governance/Polity): India’s FDI policy, national security considerations, and executive discretion over strategic sector investment rules.
- GS 3 (Economy/IR/Industry): Foreign investment, supply-chain integration, “Make in India”, manufacturing competitiveness, and balancing economic growth with geopolitical risk.
India’s Chinese FDI policy
Origin of curbs
- In 2020, India imposed prior-approval requirements on FDI from neighbouring countries, primarily China, citing national security concerns after border tensions.
- The policy aimed to prevent opportunistic takeovers of Indian firms during the COVID-19 economic slowdown.
Current status
- Chinese FDI is not banned but subject to government approval, making inflows slower, uncertain, and concentrated in limited sectors.
Context: India’s investment and growth needs
Manufacturing and supply chains
- India seeks to expand manufacturing capacity, exports, and employment, especially in electronics, batteries, renewables, and critical components.
- Many global supply chains remain China-centric, creating a dilemma between diversification and economic efficiency.
Arguments in favour of easing curbs
Industrial capacity and exports
- Chinese investment can accelerate scale, technology transfer, and cost competitiveness, particularly in electronics assembly and component manufacturing.
- Greater Chinese participation could help India integrate into regional and global value chains, boosting exports rather than import dependence.
Supply-chain resilience
- Allowing controlled Chinese FDI may reduce reliance on imports by localising component production, supporting “Make in India” objectives pragmatically.
Arguments against easing curbs
National security risks
- Chinese investments raise concerns over data security, critical infrastructure, surveillance, and strategic leverage, especially in digital, telecom, and defence-linked sectors.
- Economic dependence can translate into political and strategic vulnerabilities, limiting India’s policy autonomy.
Limited developmental spillovers
- Past experience shows Chinese firms may prefer import-heavy assembly models, limiting deep technology diffusion and domestic value addition.
Sectoral differentiation: where easing may help
Low-risk manufacturing sectors
- Easing curbs in non-sensitive sectors such as consumer electronics components, EV parts, and solar equipment could enhance domestic manufacturing without strategic exposure.
- Strict conditions on local sourcing, exports, and ownership caps can mitigate risks.
Strategic and sensitive sectors
- Sectors like telecom, fintech, digital platforms, defence, and critical infrastructure warrant continued restrictions due to high security externalities.
Geopolitical and global context
- The global economy is moving towards friend-shoring and strategic industrial policy, not pure openness.
- India must signal predictable investment rules while retaining the flexibility to protect national interests in a fragmented global order.
Economic realism vs strategic caution
- Removing curbs alone will not automatically attract Chinese capital; policy certainty, market access, and export orientation matter equally.
- India must avoid becoming merely an assembly hub, without upstream capability and innovation depth.
Way forward: calibrated engagement
- Adopt a case-by-case, sector-specific approach to Chinese FDI, linking approvals to technology transfer, export commitments, and domestic value addition.
- Strengthen regulatory capacity, data protection, and competition policy to manage risks rather than rely on blanket restrictions.
- Parallelly, deepen ties with alternative investment partners to prevent excessive dependence on any single country.
