FDI from China: A senior government official has highlighted the need for a nuanced approach towards foreign direct investments (FDI) from China. The official suggested that FDI applications from Beijing in high-end technology sectors such as electric vehicles and batteries, which are not readily available from other countries, should be considered.
China possesses advanced capital equipment that could be crucial for India’s growth. Despite no plans to ease the rules under Press Note 3, Chinese FDI applications may be expedited in areas where India needs to enhance its manufacturing capabilities.
Press Note 3 mandates that FDI from countries sharing land borders with India requires mandatory government approval. These countries include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.
“We need to be strategic about where Chinese FDI can benefit us. We’re not interested in more mobile manufacturing, but in sectors like batteries, cutting-edge technologies, or e-vehicles, where China excels,” said the official, who chose to remain anonymous.
The official underlined that Chinese investments should be considered in sectors where India lacks alternatives or where Chinese firms offer unique expertise and skills.
Applications under Press Note 3 will be evaluated on a case-by-case basis. “For FDI in sectors that boost our manufacturing capacity, we should expedite the approval process. This is being discussed by the committee of secretaries,” the official added.
An inter-ministerial committee, headed by the Home Secretary, currently reviews these applications.
The official was responding to the pre-budget Economic Survey on July 22, which advocated seeking FDI from China to enhance local manufacturing and tap into the export market. As the US and Europe shift their sourcing away from China, it may be more effective to attract Chinese companies to invest in India and export products to these markets, rather than importing from China, the survey suggested.
India faces two options to benefit from the ‘China plus one strategy’: integrating into China’s supply chain or promoting FDI from China. The survey recommended the latter, citing its potential to boost India’s exports to the US, similar to the approach taken by East Asian economies in the past. This strategy could be more advantageous than relying on trade, given China’s status as India’s top import partner and the growing trade deficit.
China ranks 22nd in terms of FDI equity inflow into India, with only 0.37 per cent share ($2.5 billion) from April 2000 to March 2024.
Bilateral relations between India and China deteriorated significantly after the Galwan Valley clash in June 2020, the most severe military conflict between the two nations in decades. The militaries have been in a standoff since May 2020, with no full resolution of the border dispute, although disengagement has occurred at several points of friction.
India maintains that normal ties with China are contingent on peace at the border. Following the tensions, India banned over 200 Chinese apps, including TikTok, WeChat, and Alibaba’s UC Browser, and rejected a major investment proposal from EV maker BYD.
However, earlier this year, the Competition Commission of India (CCI) approved JSW Group’s acquisition of a 38 per cent stake in MG Motor India Pvt Ltd, a subsidiary of Shanghai-based SAIC Motor.
The government is also streamlining visa approval processes for Chinese professionals whose expertise is needed by Indian industries to establish manufacturing capacities.
Despite minimal FDI from China, bilateral trade has surged. China emerged as India’s largest trading partner with $118.4 billion in two-way commerce in 2023-24, surpassing the US. India’s exports to China grew by 8.7 per cent to $16.67 billion, with key growth sectors including iron ore, cotton yarn/fabrics/made-ups, handloom, spices, fruits and vegetables, plastic, and linoleum.
Imports from China rose by 3.24 per cent to $101.7 billion, widening the trade deficit to $85 billion in the last fiscal year from $83.2 billion in 2022-23.
The data from Commerce Ministry shows that China was India’s top business partner from 2013-14 to 2017-18 and in 2020-21. Before China, the UAE held this position, with the US being the largest partner in 2021-22 and 2022-23.
(With PTI inputs)
