India - China: Economic Engagement with China Cannot Come at The Cost of National Security
STORIES, ANALYSES, EXPERT VIEWS
Despite a probable thaw in relations, India has maintained restrictions on Chinese investments. This, in the view of The Statesman “is not just a matter of economic policy but a strategic imperative shaped by national security concerns and geopolitical realities.” Chief Economic Adviser V. Anantha Nageswaran’s remarks reinforce that any shift in this stance will not be immediate, and for good reason.
The government’s policy shift, after the 2020 Galwan Valley clashes, was thus, “not a knee-jerk reaction but a recalibration of economic engagement with China in light of national security considerations. Since then, India has systematically tightened its foreign direct investment (FDI) norms, making prior government approval mandatory for investments from countries sharing a land border with India.”
The move primarily targeted China, which had been rapidly expanding its footprint in Indian start-ups, technology firms, and critical infrastructure. While the restriction on Chinese investments has undoubtedly impacted some sectors, particularly those reliant on capital inflows, “India has actively sought alternatives. Domestic investors, venture capital firms, and global players from the US, Japan, and Europe have stepped in to fill the gap. The underlying message is clear: India is willing to forego short-term economic benefits to ensure that its long-term strategic interests remain secure….”
Beyond investments, India is also concerned about trade imbalance. India’s trade deficit with China is at an alarming $93 billion to $95 billion, making it one of the largest bilateral trade gaps in the world. Despite India’s efforts to boost domestic manufacturing and reduce dependence on Chinese imports, critical sectors such as electronics, pharmaceuticals, and telecom continue to rely heavily on China for raw materials and components. Addressing this imbalance, writes The Statesman “requires not just curbing Chinese investments but also developing robust domestic supply chains and diversifying trade partnerships….”
Basically, “India’s stance remains pragmatic ~ economic engagement with China cannot come at the cost of national security. The Ladakh standoff is yet to be fully resolved, and tensions along the Himalayan border persist. Until there is a tangible shift in China’s approach toward India, particularly on security concerns, any easing of investment restrictions remains unlikely. Ultimately, India’s policy on Chinese investments is not about decoupling but about recalibrating economic ties in a way that safeguards national interests.”
