Risks of Increasing Chinese FDI in India

Source: The post Risks of Increasing Chinese FDI in India has been created, based on the article “Weighing in on business as usual with China” published in “The Hindu” on 24th September is 2024

UPSC Syllabus Topic: GS Paper 2- International relations-Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Context: The article discusses India’s delicate relationship with China, noting unresolved border tensions and China’s demands. It questions allowing Chinese investments in India, citing economic risks, trade deficits, and concerns about security and dependency on Chinese supply chains.

For detailed information on Impact of Chinese FDI on India’s Manufacturing and Economy read this article here

What is the Current State of India-China Border Tensions?

1. India’s Minister of External Affairs, S. Jaishankar, stated that 75% of disengagement issues with China have been resolved.
2. However, the border remains heavily militarized, with no progress in critical areas like Depsang Plains and Demchok.
3. India insists peace along the Line of Actual Control (LAC) is necessary for normalizing relations.
4. Indian forces face challenges accessing at least 15 patrolling points in Ladakh.
5. Since the 2020 Ladakh transgressions, China has altered the status quo, and India is yet to restore earlier conditions along the LAC.

How is the Economic Relationship Between India and China Evolving?

1. India’s 2024 Economic Survey suggests encouraging Chinese investments to integrate into global supply chains instead of relying on imports.
2. India’s trade deficit with China increased to $105 billion in 2023, up from $64 billion in 2021.
3. India’s exports to China fell from $23 billion in 2021 to $16 billion in 2023, highlighting worsening trade relations.
4. Chinese demands include equal treatment for their companies and resumption of normal relations, without addressing core border issues.

What are the Risks of Increasing Chinese FDI in India?

1. Dependency on China: Indian industries remain dependent on Chinese imports, which increases vulnerability. China has a history of weaponizing such dependencies.
2. Low Value Investments: Chinese investments may lead to low-value additions, hindering India’s industrial development in key sectors.
3. No Reduction in Imports: Experience from ASEAN shows that Chinese investments didn’t reduce imports. ASEAN’s imports from China rose from $386 billion in 2021 to $438 billion in 2023.
4. Strategic Sectors at Risk: China may dominate crucial industries like electric vehicles and solar equipment, preventing India from building its own manufacturing capacities.
5. Security Concerns: Increased Chinese investments in sensitive sectors could pose national security risks.

How Should India Approach Its Economic Ties with China?

1. India should be selective in allowing Chinese investments, focusing on sectors that align with its national security and industrial goals.
2. It’s crucial for India to balance its economic ties with China while protecting its own strategic interests.

Question for practice:

Examine the risks and challenges India faces in increasing Chinese FDI while balancing its economic and strategic interests.