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India's Balancing Act: Navigating Chinese Investments for Mutual Growth

India cautiously navigates Chinese investments for mutual growth amidst concerns raised by voices within the government about finding the right balance between importing goods and capital from China. Commerce and Industry Minister Piyush Goyal clarified that the government continues to support foreign direct investment (FDI) from China. However, the ongoing Sino-Indian border tensions since April 2020 complicate India's policy choices in this regard. Despite restrictions, Chinese companies have found alternative ways to invest in India. While China dominates global supply chains, it is essential for India to adopt a strategic approach. The cleared investment proposals signal India's attractiveness for FDI and should be embraced for the country's economic development.



Voices within the Indian government have recently expressed caution regarding the Economic Survey's proposal to strike the right balance between importing goods and importing capital from China. However, Commerce and Industry Minister Piyush Goyal clarified on Tuesday that the government is not reconsidering its support for foreign direct investment (FDI) from China. He emphasized that the survey is merely a report that often introduces new ideas. While the Vice-Chairman of NITI Aayog has called for clearer guidelines on approving Chinese FDI, India's policy choices in this matter are undoubtedly influenced by the ongoing Sino-Indian border tensions since April 2020. Consequently, the bilateral economic relationship is far from business as usual, with increased scrutiny of FDI proposals from countries sharing land borders with India, primarily targeting China.


Despite restrictions, Chinese companies have managed to continue investing in India by finding alternative routes. The government maintains that it does not impose a blanket ban on Chinese investments and assesses each proposal based on its national interests. However, it is crucial to adopt a more strategic approach, considering China's dominance over global supply chains. China's near-monopoly on the production and processing of critical and rare earth minerals significantly impacts India's renewable energy production. While China remains India's top import partner, the trade deficit has been growing, even though China accounts for only 0.37% of the total FDI equity inflow reported in India from April 2000 to March 2024.

 

Despite import restrictions, Chinese-manufactured goods continue to enter the domestic market due to their low prices. This situation has negatively affected our domestic producers, particularly in the steel industry, where global steel prices have collapsed due to overcapacity. In light of these challenges, one may argue that allowing China to invest more in India could be a viable alternative. The rationale behind this lies in the strong interest shown by Chinese investors in FDI opportunities in India. Investment proposals worth over `1 trillion have been filed since the imposition of restrictions in April 2020, and half of them have already been approved. This positive development should be viewed as an opportunity for significant investments to materialize. The `50,000 crore worth of proposals that have been cleared since April 2020 should be seen in the context of FDI inflows from China and Hong Kong. During this period, India received `976 crore in equity inflows from China.


To provide further perspective, the cumulative FDI inflows from April 2000 to March 2024 amounted to `16,088 crore from China and `2,672 crore from Hong Kong since the imposition of restrictions. In contrast, the total investments from China and Hong Kong from April 2000 to March 2024 stood at `29,893 crore, according to the Department for Promotion of Industry and Internal Trade. Clearly, the number of cleared proposals represents a much larger magnitude than the actual inflows since April 2020, indicating a strong intent to invest in India. Rather than signaling a shutdown of Chinese investments, as feared by some, these figures highlight India's continued attractiveness as a destination for FDI. This positive trend should be wholeheartedly embraced as it bodes well for the country's economic growth and development.


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