Why India Is Rethinking Its China Policy
An economic adviser to India's prime minister just made a suggestion that would have been unthinkable a few years ago: open the door wider to Chinese money.
Rakesh Mohan, who serves part-time on Modi's Economic Advisory Council and previously served as deputy governor of India's central bank, argued that the country must take a pragmatic approach toward China. He argued that India should ease restrictions on Chinese investment and reconsider joining trade pacts it walked away from in the past.
The reason comes down to a simple math problem. India buys more than $130 billion worth of Chinese goods every year but exports very little. "We are importing everything from China and exporting very little," Mohan said.
Get the market news that matters in a five-minute read with Market Briefs, our free daily newsletter
At the same time, the United States looks like a less steady partner. Mohan called Washington "a lot more unreliable" under President Trump's tariff-heavy approach, which has pushed countries to find backup options. When your biggest trading partner starts acting unpredictable, you look elsewhere.
"We have to be pragmatic in our dealing with China," Mohan said. "Economic security is as important as national security."
The Numbers Behind the Rivalry
A 1962 war between India and China set the stage for enduring strategic rivalry, punctuated by repeated military confrontations. That tension got worse in 2020 when deadly border clashes broke out, leading India to tighten scrutiny of Chinese investment. Since then, New Delhi has blocked dozens of Chinese apps and imposed stricter approval processes for investments in sectors like telecom and infrastructure. Mohan's suggestion signals a possible shift away from that hardline stance, acknowledging that economic realities may outweigh security concerns.
Before that, India had already made a big choice in 2019. It decided not to join the Regional Comprehensive Economic Partnership, or RCEP, a China-backed trade deal. India opted not to participate, worrying that inexpensive imports would damage local producers and farmers.
But the problem has not gone away. The increasing reliance on Chinese products makes closer ties necessary, Mohan argued. "We need to be much more part of the Asian supply chain," he said.
That means India may now reconsider joining RCEP. Mohan also encouraged India to pursue membership in the CPTPP, a major trade agreement among Pacific Rim nations. He also advocated reducing barriers to business travel and cultural exchanges - such as broadening visa categories for professionals, boosting academic partnerships and reinstating additional flight routes.
The trade imbalance with China has long been a point of tension. India's exports to China are mostly raw materials like iron ore and cotton, while it imports finished goods such as electronics and machinery. Bridging this gap without exposing domestic industries to excessive competition remains a key policy challenge.
Join Market Briefs, our free daily newsletter, for a quick daily rundown of the markets
