US less reliable? India may need to open the door wider to the Dragon

India should reconsider its economic approach towards China and allow more Chinese investment into its manufacturing sector as changing global trade dynamics make the US a less dependable partner, according to a member of Prime Minister Narendra Modi's Economic Advisory Council.

Rakesh Mohan, a part-time member of the council, said New Delhi should use its low-cost manufacturing base to attract investment from Chinese companies instead of relying mainly on protectionist measures. Such a strategy, he said, could help create jobs, strengthen exports and make India more competitive in global supply chains.

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The former Reserve Bank of India deputy governor said the focus should be on encouraging Chinese investment in labour-intensive industries such as textiles, garments, footwear and furniture, where India has the potential to expand manufacturing at scale, he said in an interview, according to Bloomberg.

Chinese investments can support jobs and exports

Mohan said India needs to take a closer look at its trade relationship with China and identify products where domestic companies can compete more effectively.

"We are importing everything from China and exporting very little," Mohan said. "We have to look in detail at what China imports and identify where India can compete."

His comments come at a time when New Delhi is reassessing its economic priorities amid shifts in global trade. While India tightened scrutiny of Chinese investment after the deadly border clashes in 2020, growing uncertainty over US trade policy has prompted fresh debate over whether the country should broaden its economic partnerships across Asia.

Also Read: India, China trade rises to USD 91.72 bn in first 6-month

Global trade patterns call for a wider strategy

According to Mohan, India should continue negotiating trade agreements with Western economies, including the US, but should not depend on any single market. He said East and Southeast Asia are likely to remain key drivers of global economic growth over the next decade, making stronger regional engagement increasingly important.

Washington has become "a lot more unreliable" because of frequent changes in its trade policies, Mohan said, making it necessary for India to diversify its economic relationships.

"We need to be much more part of the Asian supply chain," he said.

As part of that approach, Mohan said the government should reconsider staying out of the China-backed Regional Comprehensive Economic Partnership (RCEP), which India chose not to join in 2019 over concerns that cheaper imports could hurt domestic manufacturers and farmers.

He also urged New Delhi to explore joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), saying membership of both trade blocs would help India integrate more closely with Asian supply chains, strengthen manufacturing and improve exports to Western markets.

Economic engagement despite strategic rivalry

India and China have remained strategic rivals since their 1962 war and have experienced repeated military stand-offs along their disputed Himalayan border. Relations deteriorated sharply after the 2020 clashes, prompting India to tighten rules governing Chinese investment.

However, both countries have taken steps to improve ties over the past year. India has restored direct flights, resumed issuing business visas and cleared selected Chinese investments, including in the electronics sector. China, however, continues to restrict exports of critical materials and technologies, including rare earths, while India still maintains some restrictions on Chinese investment and business activity.

"We have to be pragmatic in our dealing with China," Mohan said. "Economic security is as important as national security."

The former central banker also called for easier business travel between the two countries, including a wider issuance of business visas, stronger academic exchanges and the restoration of more direct flights.

India-China trade ties continue to deepen

Mohan said India's economic links with China have continued to grow despite political tensions. The country imported goods worth more than $130 billion from China in the financial year ended March, underscoring how closely the two economies remain connected.

In his view, that reality means India should pursue a more balanced approach, one that protects national interests while making better use of Chinese investment and regional trade opportunities to strengthen manufacturing and expand exports.

India's China investment policy shows signs of change

The government's evolving approach to Chinese investment has become more visible in recent months.

Earlier this week, Chinese smartphone maker Vivo Mobile India received long-awaited government approval to form a joint venture with homegrown contract manufacturer Dixon Technologies to produce smartphones in India.

Also Read: Vivo-Dixon deal approval reveals India's new China playbook

While the decision relates to one of the country's largest smartphone brands and one of its biggest electronics manufacturers, it also signals a broader shift in how New Delhi is dealing with Chinese-linked investment.

Since the introduction of Press Note 3 in 2020, debate around Chinese investment has largely centred on tighter scrutiny and restrictions. But a series of approvals over the past two years suggests the government is moving away from a simple approach of either accepting or rejecting Chinese participation.

Instead, policymakers appear to be working towards a framework that allows India to benefit from Chinese technology, manufacturing expertise and supply chains while ensuring ownership, governance and long-term value creation increasingly remain in Indian hands.

Press Note 3 was introduced after the Galwan Valley clash in 2020, when government approval for investments from countries that share a land border with India were mandated. The policy was widely seen as an attempt to curb Chinese investment and prevent opportunistic acquisitions of Indian assets at a time of heightened geopolitical tensions.

The move sharply slowed fresh Chinese investment. Many proposals remained pending for years, while several companies struggled to expand operations or launch new projects. At the time, many viewed the policy as effectively shutting the door on Chinese capital.

Recent approvals, however, suggest the government is applying the existing framework more selectively. Rather than excluding Chinese companies altogether, New Delhi appears to be distinguishing between investments that increase Chinese ownership of Indian assets and those that help strengthen domestic manufacturing under Indian leadership.

That approach reflects the practical realities of global manufacturing. India wants to diversify supply chains and reduce excessive dependence on any one country. Yet many of the technologies, supplier networks and production capabilities needed to expand electronics manufacturing remain concentrated in China and the wider East Asian region.

The emerging model therefore is neither complete decoupling nor unrestricted access. Instead, it allows Chinese companies to participate where the investment strengthens domestic manufacturing, increases localisation and leaves strategic control with Indian businesses.

Trade imbalance remains a challenge

Trade between the two countries has continued to expand despite political differences.

According to data released by Chinese customs, China's exports to India rose 21.8% in the first half of 2026 to $79.41 billion. Indian exports to China increased at a faster pace of 37.2% to $12.31 billion.

Total bilateral trade during the six-month period climbed 23.6% to $91.72 billion as shipments increased in both directions.

But, India's trade deficit with China widened to $67.1 billion in the first half of the year as Chinese exports continued to outpace India's sales.

New Delhi has repeatedly urged Beijing to provide greater market access for Indian products, particularly in information technology services, pharmaceuticals and agricultural goods, where India believes it has a competitive advantage.