By K Raveendran
India’s economic aspirations have long been anchored in the expansion of its manufacturing sector, a goal that has become increasingly critical as the country seeks to position itself as a global economic powerhouse. It is widely believed that the realisation of this goal would be impossible without Chinese investments, which however, come with certain risks to national security. In fact, Chinese companies have played a key role in India’s emergence as the second largest manufacturer of mobile phones in the world.
Comments by External Affairs Minister S. Jaishankar, made during a visit to Berlin the other day, underscore a nuanced approach towards the issue. Jaishankar emphasized that India is not categorically closed to business with China but highlighted the importance of assessing both the sectors involved and the terms of engagement. This reflects a pragmatic stance towards navigating the complex landscape of India-China business relations.
Tensions between the two nations escalated following clashes between their troops along the Himalayan frontier, leading to a significant strain in bilateral relations. In response, India tightened scrutiny over investments from Chinese entities and halted several major projects. These measures were taken in light of national security concerns and geopolitical dynamics, reflecting a broader trend of countries reassessing their economic engagements with China amidst rising global tensions.
Despite these challenges, the realization that Chinese investment is integral to India’s manufacturing expansion has gained traction. The scale of China’s financial resources is immense, and its role as a major global investor cannot be ignored. A complete severance of economic ties would not only hinder India’s development goals but also forego an important source of capital that could drive significant progress in various sectors.
A pragmatic approach, therefore, necessitates that trade relations between India and China continue, albeit with caution and strategic oversight. The model of U.S.-China trade relations offers valuable insights in this regard. Despite ongoing geopolitical rivalry and competition for global influence, the economic interdependence between the United States and China has flourished. Over the past decades, trade between the two nations has expanded considerably, making China one of the largest export markets for U.S. goods and services. Conversely, the U.S. remains a top export market for China, reinforcing a mutually beneficial economic relationship despite political tensions.
This economic entanglement has led to lower prices for American consumers and higher profits for U.S. corporations, demonstrating the tangible benefits of maintaining robust trade relations. However, this relationship has also highlighted significant costs, including trade imbalances and economic dependencies that have sparked debates about national security and economic sovereignty. The U.S.-China trade dynamic thus illustrates both the potential gains and pitfalls of engaging with a major global economic player while navigating a complex political landscape.
For India, adopting a similar model of cautious engagement could offer a pathway to balancing economic benefits with national security concerns. This approach would involve rigorous scrutiny of Chinese investments, particularly in sensitive sectors, while still fostering economic cooperation in areas where mutual benefits are clear. By leveraging China’s substantial financial resources, India could accelerate its manufacturing growth and enhance its competitive edge on the global stage.
Historically, Chinese companies have seen India as a lucrative market due to its rapid economic growth and large consumer base. Investments have spanned various sectors, including technology, infrastructure, and manufacturing. Companies like Huawei and Xiaomi have made significant inroads into India, capitalizing on the country’s growing digital and consumer markets.
However, following the border skirmishes in 2020 and heightened security concerns, the Indian government has increasingly scrutinized foreign investments, particularly from China. This has led to tighter regulations and a more cautious approach towards Chinese capital. In 2021, the government implemented new rules requiring prior approval for Chinese investments in sectors deemed critical to national security. This move aimed to prevent potentially strategic sectors from falling under foreign influence without adequate oversight.
In 2023, the government further tightened its stance, with increased delays and reviews for investments originating from China. Several high-profile investment proposals were either rejected or subjected to extensive delays as they underwent rigorous security assessments. The emphasis on self-reliance and encouraging domestic manufacturing has also influenced India’s approach, with a focus on reducing dependence on foreign technology and supply chains. (IPA Service)