Syllabus: Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth
- India plans to scrap curbs on Chinese firms bidding for government contracts imposed in 2020.
- Restrictions followed the Galwan Valley clash, requiring security and political clearances.
- Reuters estimates China lost $700–750 billion in contracts due to these measures.
Trends in Chinese Investment
- China contributed less than one percent of India’s FDI equity inflows between 2000–2021.
- Direct Chinese investments historically remained low even during favourable policy periods.
- Most Chinese investments were routed indirectly through tax havens, limiting accurate measurement.
- It is noted that Chinese firms rarely invest directly into host economies.
Policy Changes and Regulatory Impact
- April 2020 note mandated government approval for investments from bordering countries.
- The rule targeted beneficial owners from land-border nations, affecting indirect Chinese inflows.
- It is estimated that the policy dented previously planned Chinese investments into Indian markets.
Economic Survey and Strategic Rationale
- The Economic Survey 2023–24 supported increased Chinese FDI to strengthen supply chains.
- The Survey linked FDI inflows to higher Indian exports and global value chain integration.
- It cited U.S. and European trade declines with China during 2023–2024.
- The Survey compared India’s potential to East Asian export-led development experiences.
Trade Shifts and Manufacturing Example
- China’s share of U.S. smartphone imports fell from over 60 percent in 2016.
- By 2026, China’s share dropped to around 22 percent due to tariff impacts.
- India, Vietnam, and Thailand recorded higher shares in U.S. smartphone imports.
- Replicating this diversification without Chinese participation remains challenging.
FDI Stock and Investment Sentiment
- China’s FDI stock in India declined between 2014 and 2024, falling 19 global ranks.
- It is suggested 2020 curbs signalled an unpredictable investment environment to Chinese firms.
- Despite interest, Chinese investors remained cautious toward India’s regulatory stability.
