new delhi, Aug 20
India should encourage targeted Chinese FDI in manufacturing under the PLI scheme, particularly in high-dependence sectors like electronics, automobiles, and pharmaceuticals, thereby strengthening domestic capacity, local supply chains, and technology transfer, says a latest study. Amidst the thaw in India-China relations, the study “Calibr-ating India’s Economic Engagement Strategy with China Amidst the Changing Geopolitical Landscape” by International Economic Relations (ICRIER) has examined the existing imbalances in economic relations between the two countries and suggested key recommendations for the way forward.
Trade with China has remained highly imbalanced, with imports worth US $113.5 billion and exports just US $14.3 billion, resulting in a record bilateral deficit of US $99.2 billion in 2024-25. On the other hand, FDI inflows from China have remained abysmally low at US $886 million during the last decade.
“The study, undertaken by Professor Nisha Taneja and her team, explores three key questions: (i) How can India enhance and diversify its exports to China? (ii) What strategies can reduce India’s import dependence on China? and (iii) How can Chinese FDI into India be increased with appropriate guardrails?” ICRIER, New Delhi said in a statement. As per the study, India’s untapped export potential to China is estimated at US$ 161 billion – almost ten times the actual export value, 74 per cent of which is in medium and high-tech sectors unlike the composition of current exports which are concentrated in primary, and resource-based sectors. India needs to adopt an export diversification strategy and target items with high export potential such as telephone sets, aircraft, turbojets, motor vehicle parts, and photo-semiconductor devices.
The study highlights that the realisation of large additional export potential with China has been constrained by several tariff and non-tariff barriers. To address market access barriers, India and China should set up a joint task force to resolve NTBs, improve transparency through fair testing and WTO compliant communication. On its part, India must upgrade its quality standards to enhance export competitiveness and reduce vulnerability to trade measures. As regards imports from China, India’s heavy reliance on Chinese imports, especially in intermediate and capital goods, raises concerns, but complete decoupling is unrealistic given China’s deep integration in global value chains.
“Rather, the study recommends that India should encourage targeted Chinese FDI in manufacturing under the PLI scheme, particularly in high-dependence sectors like electronics, automobiles, and pharmaceuticals, thereby strengthening domestic capacity, local supply chains, and technology transfer,” the statement said.
Besides, India should reduce uncompetitive imports by sourcing from more competitive suppliers such as Vietnam, South Korea, and the UAE, which offer lower prices than China for several products. India’s uncompetitive imports—where other suppliers provide cheaper alternatives—are mainly concentrated in machinery, electronics, and chemicals, valued at nearly US$ 30 billion, and account for about two-thirds of the import value of the top 50 products.
