It's Time for India to Welcome FDI from China

As relations thaw, and with both countries facing external and domestic headwinds, expanding investment links would be a win-win.

- Vikram Khanna

At the end of August, India's Prime Minister Narendra Modi will visit China for the first time in seven years, to attend the summit of the Shanghai Cooperation Organisation. It will be an opportunity to signal India's willingness to upgrade its economic relationship with China, starting with re-welcoming Chinese foreign direct investment (FDI).

After almost five years of all but shunning China's involvement in India's economy in areas other than trade following a bloody border skirmish in 2020, this would be a radical step. But the upending of trade arrangements with the US, which affects both China and India, as well as the other economic headwinds that they face make it timely and potentially win-win.

So far, the US has arbitrarily imposed tariffs of 50 per cent on India and 30 per cent on China. Both countries are negotiating trade deals with Washington. Even if they reach them, which they probably will, the future of their trade relationships with the US will remain uncertain. Under a whimsical and unpredictable Trump administration, the US cannot be counted on to keep its trade agreements, which are driven by executive order and do not have the imprimatur of the US Congress.

By expanding bilateral economic links, both China and India can partially de-risk the trade and other uncertainties they face vis-a-vis the US and reap other benefits besides. India opening up to FDI from China would be the most significant step towards such an expansion.

A CONTROVERSIAL, BUT LOGICAL IDEA

The idea has been controversial in India, but not heretical. Its annual economic survey released in July 2024 proposed welcoming more FDI from China.