Centre may prepare a list of sectors for Chinese investments

New Delhi: The Central government may consider preparing a list of sectors and industries where Chinese investments may be allowed, provided these help indigenize manufacturing and do not pose a security risk, two people aware of the matter said.

Once identified, investments may be permitted in these sectors without additional scrutiny under the Press Note-3 of the Foreign Direct Investment (FDI) regulation applicable to neighbouring countries.

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In place since the 2020 border conflict between India and China, Press Note-3 made it mandatory for investors from countries with land borders with India to seek government approval to invest. As a result, very little investment has come in from China since the regulation, even though imports have maintained their momentum.

“This is an idea which has been floated. But, there hasn’t been any decision taken in this regard,” the first person mentioned above said, requesting anonymity.

“As things stand, there is continuously a security threat from China which hasn’t gone away. However, there are some industries/sectors where security threats may not be present, and accepting investment from China may help us indigenise our production,” the person added.

On 25 July, the Hindustan Times reported the government is considering holding discussions on reviewing the regulation, with the department for promotion of industry and internal trade (DPIIT) looking into the matter.

If the idea takes wings, the DPIIT will work with the Union home ministry to gauge the security risk posed by investments in various sectors before drawing up a list of items where automatic Chinese investments can be permitted, said the second person aware of the matter, who spoke under the condition of anonymity.

The second person added that a decision is yet to be made.

The domestic industry, particularly those using Chinese plants and equipment have urged the government to ease the FDI regime saying they were facing technical and other challenges due to restrictions on visas for skilled manpower from China.

Several companies are also struggling to source component investments, something impacting the country’s own manufacturing programme.

“As we integrate more and more into the global supply chains, we will import more raw materials and export more end-products. So, should companies from neighbours like China be allowed to invest and produce in India? The idea is to start a discussion. This has been thrown up by the Economic Survey and requires much discussion,” the second person added.

The latest Economic Survey, released last week, suggests India consider foreign direct investments from its northern neighbour to boost exports, cashing in on the China-plus-one strategy playing out globally.

Spokespersons of the finance and commerce ministries didn’t respond to emailed queries.

Some experts said allowing Chinese firms to ‘Make in India’ risks overwhelming domestic industries and poses the challenges of domestic firms being dependent on Chinese companies for critical supplies and economic growth.

“Furthermore, India’s participation in the Indo-Pacific Economic Framework (IPEF) and the Supply Chain Resilience Initiative (SCRI) with the USA and other partners explicitly aims to reduce dependency on Chinese supply chains. Encouraging Chinese FDI contradicts these strategic efforts to diversify and strengthen supply chains independent of China,” said Ajay Srivastava, founder of the economic think tank Global Trade Research Initiative (GTRI).

“While Chinese companies investing in India and exporting to Western markets might seem beneficial in the short term, it risks undermining India’s long-term economic security and strategic autonomy. Dependence on Chinese firms for key manufacturing capabilities could expose India to supply chain vulnerabilities and geopolitical risks,” he added.

A new investment regime with respect to neighbours would lay special emphasis on restricting bringing in dual-use technologies that compromises data and pose security risks. But, investments in areas such as specialized mining, construction equipment etc may be permitted as it would aid Made in India and strengthen the country’s position to export capital goods.