India’s easing up on China is the right move at the right time

In 2019, India decided against joining RCEP, a trade agreement spanning 15 Asia-Pacific countries. A few months later, in April 2020, the Centre amended the FDI policy via Press Note 3, making government approval mandatory for investments from countries that share a land border with India. Both decisions were, in part, driven by concerns over China. But despite the ambiguity since then over the relationship with Beijing, trade ties between the two countries have deepened considerably. Imports from China touched $131 billion in 2025-26 and the country now accounts for roughly half of India’s non-oil goods trade deficit. However, FDI from China has been minuscule. Since 2000, investment flows to India have added up to just $2.5 billion. The government has now approved a joint venture between Dixon Technologies and Vivo Mobile for manufacturing electronic devices and smartphones in the country. This is a step in the right direction.

In recent years, there has been a concerted attempt by multinationals to diversify away from China. India has, however, not been a significant beneficiary of the China+1 play, with countries like Vietnam benefiting more. The Economic Survey 2023-24 put forth two choices to benefit from the trade diversion away from China — either integrate more deeply with its supply chains or encourage greater FDI from the country. The Survey veered towards the latter option. In line with this thinking, in March this year, the Union cabinet approved changes to the FDI policy for investment from countries that share a land border with India in order to facilitate greater inflows. The approval of the joint venture between Dixon Technologies and Vivo Mobile and the waiver of customs duty on 85 goods used in manufacturing batteries, display assemblies and others comes only days after four Chinese power equipment manufacturing companies were reportedly allowed to take part in government tenders for critical power projects.

China is inextricably linked to the global manufacturing supply chain. That reality cannot be wished away. China is also a large source of FDI. As per the World Investment Report by UNCTAD, its outward investment “has become more targeted, with greater emphasis on greenfield projects, manufacturing, energy, infrastructure and critical raw materials, often in developing economies and along South-South investment corridors”. While India has legitimate strategic and security concerns, there are also economic imperatives. A balance must be struck. The domestic manufacturing ecosystem must be deepened, and efforts stepped up to increase value addition and pursue closer integration with global supply chains. A careful and calibrated approach is needed.