Why India’s CEOs Put Pressure On India/China Detente
The Indian government is considering relaxing its business and trade bans on China, following increased pressure from Indian businesses this year, according to a Bloomberg report.
Indian Prime Minister, Narendra Modi and Chinese President, Xi Jinping, met on Wednesday on the sidelines of the (Brazil, Russia, India, China and South Africa) BRICS summit in Russia, after announcing they had reached an agreement on "disengagement and resolution of issues in these areas" two days earlier.
India imposed the restrictions on China in response to border clashes in 2020, which caused fatalities for both countries. However, it appears India’s businesses have also been suffering as a result.
India is heavily reliant on Chinese imports of chemicals, pharmaceuticals and advanced technology components.
In fiscal year 2024, bilateral trade between both countries reached $118.4bn, making China, India’s largest trade partner. China’s exports to India totalled $101.7bn.
Between 2016 and 2023, bilateral trade grew by a considerable 66.38%, averaging an annual growth rate of 9.48%.
Businesses say the new measures have hurt India’s high-end manufacturing, such as the chipmaking sector, and have led to the collapse of a number of investment proposals, including BYD's $1 billion plan to build electric vehicles in India, according to Bloomberg.
Indian businesses have increasingly pressured the Indian government to relax the restrictions it has imposed on China since 2020, Bloomberg reports, based on comment from anonymous sources.
Finance minister says India will be cautious
While India and China are now set to work together to improve their economic relations, change may be limited and gradual.
Nirmala Sitharaman, the Indian finance minister, suggested on Tuesday that India would be cautious while easing restrictions, suggesting foreign investment requires "safeguards". However, her comments referenced neighbouring countries generally.
Among the moves India could make in the near future is allowing Chinese investment of 10% in majority-owned Indian businesses operating in sectors such as electric vehicles and electronics, an anonymous finance ministry official told Bloomberg.
India is also likely to start considering investment proposals from China, but clear them on a case-by-case basis, with Chinese manufacturing projects backed by government incentives more likely to be favoured, another source, who also wished to remain anonymous, told Bloomberg.
Despite not officially commenting on its agreement with India, China’s willingness to cooperate is unsurprising. The country has faced a number of economic challenges recently, including other trade barriers and growing competition from the US in the technology sector.
As a result, it has sought to mend relationships with other countries in recent months, including the US’ allies Australia and Japan, following a threat from US presidential election candidate Donald Trump to impose 60% tariffs on China if he wins.
"China commends the progress made and will continue working with India for the sound implementation of these resolutions," spokesperson Lin Jian said at a press conference on Tuesday.