India’s Indigenisation Challenge: Choose Chinese Imports or Investments?
India is at a crucial juncture as it navigates the challenge of balancing dependence on Chinese imports with the need for domestic investment. The Make in India initiative, launched in 2014, aimed to position India as a global manufacturing hub. However, by 2025, manufacturing’s contribution to India’s GDP had fallen below 14%, indicating a stagnation rather than growth.
India’s Economic Dependence on China
Despite efforts to indigenise production, India remains heavily reliant on China. Bilateral trade reached over $113.5 billion in the 2024-25 fiscal year, highlighting China’s status as India’s largest trading partner. Key sectors of import include:
- Electronics
- Machinery
- Chemicals
- Components for electric vehicles and telecommunications
Approximately 60% of global electronics manufacturing is centered in China. Thus, collaboration with Chinese manufacturers is becoming essential for India’s electronics ecosystem.
Declining Chinese Investments
While trade has flourished, Chinese Foreign Direct Investment (FDI) in India has drastically decreased. FDI fell from a significant $705 million in 2015 to under $100 million in 2023. This decline corresponds with changes in India’s FDI policy, particularly Press Note 3 (PN3), which mandates government approval for FDI from neighboring countries.
As a result, net FDI plummeted to $353 million in 2024-25, a stark contrast to the $43.9 billion recorded in 2020-21. Chinese investments, crucial for capital and technology transfers, have been hindered by geopolitical tensions and regulatory barriers.
Government Initiatives and Diplomatic Efforts
Recent developments indicate a potential thaw in relations between India and China. Diplomatic talks during border tensions have led to some troop withdrawals and renewed trade discussions. In October 2024, high-level consultations marked a step towards stabilizing bilateral relations.
The Indian government has proposed liberalizing its investment regime, potentially allowing up to 24% equity participation without additional clearance needed for Chinese investments. This could further include exemptions up to 49% in sectors like electronics and capital goods.
The Role of Investments in Indigenisation
Experts advocate that encouraging Chinese investments could create jobs and stimulate local production, rather than relying solely on imports. Sajjid Chinoy, an economist, emphasizes the importance of embedding value addition domestically through foreign investment.
Industries such as electronics, renewable energy, and capital goods stand to benefit significantly from increased FDI, while strategic sectors could maintain protective measures to mitigate risks.
The Path Forward for India’s Indigenisation Project
To realize the goal of indigenisation, India must shift its approach from merely importing goods to fostering domestic production capabilities. Recent licenses for Indian firms to import rare earth magnets exemplify the need for access to critical Chinese inputs for sustainable growth in industries like automotive and electronics.
Adopting a “China+1” strategy promotes supply chain diversification without completely disengaging from China. This equilibrium is vital as countries like Vietnam and Taiwan boost their trade with China, even amid shifting global trade dynamics.
In conclusion, balancing reliance on Chinese imports with a strategic embrace of Chinese investments can catalyze domestic growth. Controlled investments can enhance India’s long-term industrial interests and reduce vulnerabilities associated with supply shocks. The need for a calibrated engagement is clearer than ever in advancing India’s economic ambitions.
