India seeks trade balance amid economic pressure

Ask AI · How does India’s economic pressure drive the easing of restrictions on Chinese investment?

The picture shows New Delhi, the capital of India. (Visual China)

In March, the Indian government officially announced amendments to foreign direct investment (FDI) rules. It eased restrictions on Chinese investment in areas such as electronic components and solar cells, while allowing Chinese investors with equity stakes no more than 10% to complete their investments through an automatic approval pathway. This is the first time since 2020 that India has systematically eased its restrictions on Chinese investment, reflecting India’s current trade approach of seeking balance and being pragmatic amid the international situation and trade landscape.

In recent years, although India’s economic growth rate has still remained among the top globally, growth has slowed down. For fiscal year 2024–2025 (from April 2024 to March 2025), India’s economic growth rate is 6.5%, the lowest in 4 years. At present, structural contradictions in India’s economy are becoming increasingly prominent, and a shortage of capital has become the core bottleneck constraining India’s industrialization. According to data released by the Reserve Bank of India (India’s central bank) in February, in 2025 India’s current account deficit as a share of GDP rises to 2.1%, the rupee has depreciated by more than 4.8% against the US dollar, the total amount of foreign direct investment inflows for the full year has fallen by 12.7% year-on-year, and the funding gap in the manufacturing sector has reached nearly $20 billion.

Besides its own economic contradictions, the worsening situation in the surrounding region is also an important external factor adding pressure on India’s economy. Recently, the ongoing war involving the US and Iran has continued, and shipping through the Strait of Hormuz has been disrupted, severely impacting global energy supply chains. Under these circumstances, many industries in India have faced a natural gas supply crisis, prompting the Indian government to issue emergency measures—prioritizing the supply of gas for key industries and for households’ daily needs—which further increases pressure on economic development. Some industry figures note that this easing of restrictions on Chinese investment is mainly a policy adjustment made by India to relieve tight capital conditions and address shortcomings in the supply chain. The Indian government hopes to use this to boost the current economy and seize global trade advantages amid an increasingly complex international environment. Taking the solar industry as an example: previously, India fully restricted Chinese investment, and domestic capacity in India’s solar cell sector could only satisfy 30% of domestic demand. In upstream components of the electronics manufacturing industry, costs rose by more than 15% due to investment restrictions, directly driving up the prices of India’s exported goods and weakening its global competitiveness. In fact, after 2020, investment and trade between China and India have remained sluggish for a long time, making investment and trade exchanges a weak link in China–India economic and trade relations. It can be said that easing restrictions on Chinese investment is, for China’s side, actually a necessity for India’s economic development in the new fiscal year.

Looking closely at the specific provisions of India’s easing of investment restrictions this time, it is not hard to see that India has conveyed a “limited welcome” to Chinese capital. On the one hand, India has opened up investment areas that urgently need an infusion of capital. It also makes clear that as long as Indian residents maintain majority equity, Chinese investment applications can be approved in the short term. For compliant investments with a stake below 10%, the investments go directly through the automatic approval channel. By simplifying the process, the institutional costs for Chinese investors entering India are reduced significantly. On the other hand, India still keeps in place many cautious “fallback” clauses and has not loosened much in areas such as security reviews and Indian control. This is also, to a certain extent, for considerations of India’s domestic political sentiment.

India’s easing of restrictions on Chinese investment is naturally beneficial to both China and India, but India’s restrictions on Chinese investment still remain. Previously, India has also repeatedly revised rules and initiated compliance reviews targeting Chinese companies, and Chinese companies’ investments still face the risk of policy changes. It is worth noting that from a geopolitical perspective, this adjustment actually reflects India’s strategy of balancing as a major power: on one side, it accepts capacity transfers from the US and enjoys the dividends of cooperation between the US and India; on the other side, it introduces Chinese capital and technology to stabilize its supply chain and maximize its own economic interests. In recent times, although US–India trade negotiations have seen a significant easing in tone, disagreements have not disappeared. The Indian government may still use signals of goodwill toward China as bargaining chips to persuade the US to offer more concessions. However, such goodwill signals are not lasting, and it is worth staying alert.

Overall, this policy adjustment is a positive signal that economic and trade exchanges between China and India are warming up. In the future, India needs to properly respond to short-term pressure arising from great-power competition and election politics, and implement its economic policies with a more pragmatic attitude. (Economic Daily Reporter Shi Puhui)