India Attempts to Strengthen Economic Relations with China

With relative peace along the border, changes in the geopolitical environment, and India’s own economic needs, discussions have intensified in recent months about reassessing India’s relationship with China — especially in terms of trade and investment.

After the Galwan incident, India had taken several steps to reduce economic engagement with China. However, in the changed circumstances, these measures need to be re-evaluated.

A committee headed by former Cabinet Secretary and current NITI Aayog member, Rajiv Gauba, has presented two options before the government: The first option is to withdraw Press Note 3, a notification issued in 2020, which mandated prior government approval for any Foreign Direct Investment (FDI) proposal coming from countries that share a land border with India.

The second option is to allow investment proposals through the automatic route, provided the beneficial ownership of Chinese investors does not exceed 10%.

This effort is complex, but it is a step that many major economies are taking amid rising geo-economic competition. India should not fall behind. However, the primary motivation should be to redefine and amend Press Note 3 to allow limited Chinese investment — only if it clearly serves national interest, does not create excessive dependency, and does not transfer controlling power abroad.

At the same time, there must be renewed deliberation on how India can build an economic relationship with China that protects Indian autonomy and sovereignty.

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