WITH SOME dialling down of tensions between India and China along the border, policy makers are more open to upgrading bilateral economic relationships now. It is being viewed as an opportune time, particularly when US President Donald Trump is pushing India to the corner on reducing tariffs and forcing it to agree to terms set by Washington, especially on tariffs.
According to sources aware of developments, discussions are on between departments to dilute or neutralise some of the restrictions on trade and investments that were put in place five years ago after clashes between Chinese and Indian soldiers in Galwan in 2020.
Some of these proposals have gained traction following industry demands, and include low hanging economic outcomes such as easing of visa restrictions for Chinese personnel and lifting some tariff and non-tariff barriers on imports of consignments. Some Chinese apps may be allowed again too, they said. Resumption of flights and issuance of visas to Chinese scholars are proposals already on the cards, the sources said.
On the investment front, there are indications the Indian side is now open to allowing inflows from Beijing as a countermeasure to the widening trade deficit between the two countries. Despite the many restrictions as on date, trade flows continue to be remarkably in favour of China. Here, New Delhi may consider relaxing the Centre’s 2020 policy which requires approval by the Centre for investment from companies in countries that share land borders with India.
At least two sources who are aware of discussions, there is a growing view in India that entering into a visibly closer dialogue with China on normalising business relations could send out a signal to the US and likely act as a potential hedge. A presentation is learnt to have been recently made by the Finance Ministry in favour of opening up some of the restrictions earlier this fiscal.
Queries sent to the Ministry of Finance, as well as the Ministry of Commerce and Industry and the Ministry of External Affairs, did not elicit a response.
Easing non-tariff barriers on the table could be BIS (Bureau of Indian Standards) certification made mandatory for imports from China, including on electronic and IT products, and other items under the ambit of the increasing number of Quality Control Orders (QCOs) issued by Ministry of Commerce, the sources said.
“The rapprochement with China on business ties is inevitable, especially in the post Trump era. It’s just a question of time, but the way it’ll be done is a subject of internal debate within the government. Removal of trade and non-trade barriers is anyway an industry demand, especially from the small and medium enterprises segment,” a source said.
Besides, the government may also ease the visa policy for Chinese workers/ technicians involved in infrastructure projects by virtue of import of heavy infra equipment and their installation and operations. Over the last few years, the Indian government tightened its review process for visa extensions to Chinese individuals working in India.
ExplainedSignal to US
THERE IS a growing view in India that entering into a visibly closer dialogue with China on normalising business ties could send out a signal to the US and likely act as a potential hedge. Talks are on to consider diluting some of the restrictions on trade and investments put in place after the Galwan clashes in 2020.
“Since, we’re anyway being forced to bring down tariffs (to accommodate the Trump administration), it only makes eventual sense to ease up tariff and non tariff barriers, especially on inputs and products not manufactured in India at scale. So the view in the government is that while there will not be anything done to actively incentivise trade with Chinese, some of the disincentives can be removed. For this too, Indian industry has been making a pitch. This could include revoking total bans and restrictions on consignment from China at Indian ports,” the source said.
It is not just India but China too that is keen on restoring trade ties with India. For the growing trade deficit, Beijing has proposed investment flows from Chinese companies, the sources said.
Another source said, “The talks have been on for some time and the relaxations may be announced over the coming weeks. It will in a way also give a signal to Washington that India can start doing business with China again.” External Affairs Minister S Jaishankar had said in London early March that “Trump’s America first policy suits India as it leads to a multipolar world.”
Bilateral trade between India and China in FY24 stood at $118.40 billion. According to the latest data from the Global Trade Research Initiative (GTRI), China has once again become India’s top trading partner in FY24, surpassing the United States after a two-year gap. In FY24, China had a 15 per cent share in India’s total imports. India imported goods worth $675.42 billion from the world, including goods worth $101.74 billion from China.
On the other hand, China occupied only the 22nd position in FDI equity inflows into India, with a cumulative FDI of $2.5 billion from April 2000-September 2024. Growth in bilateral investment has not kept pace with the expansion in trading volumes between the two countries, and there is appetite in Beijing to step up investment flows, sources said. There could be some accommodation on the Indian side, going forward.
Though trade volumes have grown sharply since 2020, they have also led to the biggest single trade deficit India is running with any country. India’s trade deficit concerns are two pronged: the actual size of the deficit and that the imbalance has continuously been widening year after year to cross $83 billion in 2023. The widening trade deficit with China could be attributed to two major reasons — the narrow basket of commodities, mostly primary, that India exports to China and a number of market access impediments for most of India’s agricultural products and sectors where India has export competitiveness, including pharmaceuticals, IT/ITeS, etc.
A new working paper by the Economic Advisory Council to the Prime Minister (EAC-PM) had stated that exporters face a range of non-tariff barriers in China, limiting market access for Indian exports, particularly in agricultural and pharmaceutical products. An easing on India’s side could give New Delhi leverage in seeking more access for our goods, an official handling trade on the Indian side said.
While China is actively seeking to prevent a loss of investment due to its domestic housing crisis, combined with Western multinationals’ goal of de-risking their supply chains by seeking alternative destinations under the ‘China plus one’ policy, economists in the government have also acknowledged that decoupling from China is not easy for India or the rest of the world and India faces a choice between Chinese investment and Chinese imports.
A senior government official said there could be a gradual opening up to China, primarily to make it easier for companies from the mainland to invest in New Delhi along with domestic partners, including joint ventures between Chinese and Indian companies, where the former is a minority shareholder.
The Economic Survey 2023-24 had also called for India to encourage investments from China, while discouraging imports of finished goods, where the scope of local value addition is very little. “Where we see China, or any other country, dumping goods in India, causing injury to our domestic industry, then, we raise duties, impose anti-dumping duties, and introduce safeguard duties to protect our industry. But wherever we need their goods, then we should facilitate that,” another official said, when asked what could change in terms of the two nations’ trade ties.
A December 2024 NITI Aayog report, the ‘Trade Watch’, had noted that India had “limited success so far” in capturing the ‘China Plus One’ strategy adopted by multinational companies looking to de-risk their supply chains.
Some of India’s recent persuasions have alluded to the middle ground New Delhi would be comfortable in taking to accommodate higher Chinese investments. Earlier this year, Chinese state-owned SAIC Motors, which owned a controlling stake in MG Motors, divested from the company and sold it to an Indian group of investors led by the JSW Group, which now collectively owns 51 per cent of the automaker. Chinese apparel-maker Shein, which was banned by New Delhi in 2020, has made a second entry in the country after licensing its brand to Reliance Retail. Operations of the venture are being managed by Reliance Retail.
India does not have to look too far for models to emulate. Its success in services exports demonstrates the power of moving up the value chain, from basic (for example call centre services) to high-tech (complex professional services). 
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