No reconsideration on promoting FDI from China, bilateral trade growing rapidly amid tension

Commerce and Industry Minister Piyush Goyal said on Tuesday that the government is not reconsidering any kind of promotion of foreign direct investment (FDI) from China. He said that whatever has been said in the Economic Survey in this regard recently, only represents new ideas.

Goyal said that the things said in the survey are not binding on the government at all. In 2020, the government made its approval mandatory for FDI from countries sharing borders with India. The countries sharing land borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan.

Amid tense relations with China, the pre-budget economic review 2023-24 presented in Parliament on July 22 advocated increasing foreign direct investment (FDI) from neighboring China to promote local manufacturing and tap the export market.

Goyal has given this statement while reacting to this. The survey said that as the US and Europe are shifting their immediate supply from China, it is more effective for Chinese companies to invest in India and then export products to these markets instead of importing from the neighboring country.

The survey said that India has two options to benefit from the China Plus One strategy. It should either integrate with China's supply chain or promote foreign investment from China. Of these options, increasing FDI from China seems to be more accessible to boost India's exports to the US.

Something similar has been done by the economies of East Asian countries in the past. Choosing FDI as a strategy to take advantage of the China Plus One approach is more beneficial than relying on trade. This is because China is India's top import partner, and the trade deficit with China is growing.

FDI China's share in the total FDI that came to India from April 2000 to March 2024 was only 0.37 percent ($ 2.5 billion) and it ranked 22nd. Relations between the two countries have not yet normalized after the fierce clash in the Galwan Valley in June 2020. India has been saying that its relations with China cannot be normal until there is peace in the border area.

After tensions between the two countries escalated, India banned more than 200 Chinese mobile apps like TikTok, WeChat, and Alibaba's UC Browser. The country had also rejected a major investment proposal from electric vehicle maker BYD.

However, earlier this year the Competition Commission of India approved the proposed acquisition of a 38 per cent stake in MG Motor India Pvt Ltd by JSW Group.

Despite the tension between the two countries, bilateral trade between India and China has grown rapidly. China has emerged as India's largest trading partner with bilateral trade of $118.4 billion in 2023-24. India's exports to China grew 8.7 percent to $16.67 billion in the last fiscal. Imports from the neighboring country grew 3.24 percent to $101.7 billion. The trade deficit widened to $85 billion in the last fiscal from $83.2 billion in 2022-23.