New Delhi, Aug 20 (UNI) The Indian Council for Research on International Economic Relations (ICRIER) has suggested mandating prior Government approval for FDI from countries sharing land borders with India and establishing guardrails like restricting FDI in sensitive sectors while encouraging inflows in non-strategic areas with strong safeguards.
The ICRIER, in a study ‘Calibrating India’s Economic Engagement Strategy with China Amidst the Changing Geo-Political Landscape’ said a central inter-agency committee can streamline approvals and manage security risks.
Additionally, reviving Memoranda of Understanding (MoUs), as between 2013-2019, that strengthen structured and institutionalised mechanisms are vital to create more predictable and regular channels for dialogue and engagement, it said.
Amidst the thaw in India-China relations, the study has examined the existing imbalances in economic relations between the two countries and suggested key recommendations for the way forward.
Trade with China has remained highly imbalanced, with imports worth 113.5 billion US Dollars and exports just US 14.3 billion USD, resulting in a record bilateral deficit of 99.2 billion USD in 2024-25. On the other hand, FDI inflows from China have remained abysmally low at 886 million USD during the last decade.
The study, undertaken by Professor Nisha Taneja and her team, explores three key questions (i) How can India enhance and diversify its exports to China? (ii) What strategies can reduce India’s import dependence on China? (iii) How can Chinese FDI into India be increased with appropriate guardrails?
As per the study India’s untapped export potential to China is estimated at 161 billion USD– almost ten times the actual export value, 74 percent of which is in medium and high-tech sectors unlike the composition of current exports which are concentrated in primary and resource-based sectors.
India needs to adopt an export diversification strategy and target items with high export potential such as such as telephone sets, aircraft, turbojets, motor vehicle parts and photo-semiconductor devices.
The study highlights that the realisation of large additional export potential with China has been constrained by several tariff and non-tariff barriers. To address market access barriers, India and China should set up a joint task force to resolve NTBs, improve transparency through fair testing and WTO compliant communication.
On its part, India must upgrade its quality standards to enhance export competitiveness and reduce vulnerability to trade measures.
With regard to imports from China, India’s heavy reliance on Chinese imports, especially in intermediate and capital goods, raises concerns, but complete decoupling is unrealistic given China’s deep integration in global value chains.
Rather, the study recommends that India should encourage targeted Chinese FDI in manufacturing under the PLI scheme, particularly in high-dependence sectors like electronics, automobiles, and pharmaceuticals, thereby strengthening domestic capacity, local supply chains, and technology transfer.
Alongside this, India should reduce uncompetitive imports by sourcing from more competitive suppliers such as Vietnam, South Korea, and the UAE, which offer lower prices than China for several products.
India’s uncompetitive imports—where other suppliers provide cheaper alternatives—are mainly concentrated in machinery, electronics, and chemicals, valued at nearly 30 billion USD and account for about two-thirds of the import value of the top 50 products.
