Context and Background
- Post-Galwan Policy Shift (2020):
Following border clashes in 2020, India imposed stricter FDI rules via Press Note 3, requiring prior government approval for investments from countries sharing land borders (mainly targeting China).
Key sectors like telecom, electronics, and infrastructure were effectively blocked to Chinese firms. - Strategic Recalibration (2023–25):
Amid changing global dynamics and growing domestic manufacturing ambitions (e.g., Make in India, PLI schemes), India is cautiously rethinking its restrictions on Chinese firms, especially in non-strategic sectors.
Relevance : GS 2(International Relations)
Key Developments
Signs of Thaw: Gradual Allowance
- Dixon-Loncheer Partnership:
- Indian firm Dixon Technologies entered a joint venture with China-based Loncheer, with approval from India’s IT Ministry.
- This venture focuses on manufacturing electronics, including smartphones, tablets, wearables, and automotive components.
- About 74% of Dixon’s components in this space will come from China.
- Government Softening Stance:
- Policy think tanks like NITI Aayog have recommended easing FDI norms for China-linked entities in specific areas to boost exports.
- Recent moves include inviting Chinese firms to invest in India’s new Economic Survey 2023–24, signaling calibrated acceptance.
Balancing Act: Trade vs Security
- Continued Strategic Restrictions:
- Despite softening in electronics, sectors like defense, critical minerals, and core assembly remain largely off-limits.
- India remains wary of supply chain dependence, particularly in view of geopolitical volatility.
- Diplomatic Engagements:
- External Affairs Minister Jaishankar visited China, stressing the need for cooperation without conflict, while acknowledging persistent challenges in border resolution.
Implications for India’s Manufacturing and Trade
Electronics Sector Shifts
- Reduced Reliance? Not Yet Fully.
- China and Hong Kong remain dominant in electronics imports, contributing over 50% of total inputs.
- India’s smartphone exports to the US rose to 36% (early 2025), with China’s share in the same market dropping to 11%, indicating India’s growing role in global value chains.
- However, most components still come from Chinese or Chinese-backed firms.
Geopolitical and Trade Realignment
- India’s Dual Strategy:
- Aims to reduce over-dependence on Chinese capital while still using Chinese expertise to bolster manufacturing.
- Restrictive FDI continues in strategic sectors but is selectively relaxed in high-export-potential industries.
- Global Trade Tensions:
- China has imposed restrictions on firms doing business with India and has curbed rare earth exports.
- These retaliatory actions affect India’s electronics and renewable energy industries, both of which are heavily reliant on critical Chinese inputs.
Takeaways
- Strategic Autonomy vs Economic Integration:
India seeks to balance national security concerns with manufacturing competitiveness, particularly under PLI schemes and global supply chain diversification. - FDI Policy Evolution:
Future FDI policies may adopt a sector-specific and risk-calibrated approach, allowing non-sensitive investments from Chinese entities while shielding critical infrastructure. - China’s Role in Global Supply Chains:
Despite geopolitical tensions, Chinese companies remain integral to electronics manufacturing. India’s long-term success depends on developing indigenous capabilities and diversified sourcing.
