With tensions between India and China easing along the border, Indian policymakers are considering relaxing certain trade and investment restrictions that were imposed after the 2020 Galwan clashes. This comes at a time when US President Donald Trump is pressuring India to reduce tariffs and meet Washington’s trade demands, making it an opportune moment for India to recalibrate its economic relationship with China.
Sources indicate that discussions are underway to soften some of the restrictions put in place five years ago. These include easing visa restrictions for Chinese personnel, lifting certain tariff and non-tariff barriers, and potentially allowing Chinese apps back into India. Proposals for resuming flights and issuing visas to Chinese scholars are also reportedly being discussed.
On the investment front, India is reportedly open to Chinese foreign direct investment (FDI), particularly to address the growing trade deficit with China. Despite current restrictions, trade remains heavily tilted in favor of China. India may also reconsider the 2020 policy that requires Chinese investments to receive government approval.
A growing sentiment within India suggests that engaging China in trade normalization could serve as a counterbalance to the US’s pressure, potentially sending a strategic signal to Washington. Industry leaders, especially from small and medium enterprises, have been pushing for the removal of such barriers, particularly regarding products not produced in India on a large scale.
While the Indian government is cautious, talks about easing restrictions, especially concerning visa policies for Chinese technicians working on infrastructure projects, are reportedly gaining momentum. This could lead to a formal announcement in the coming weeks.
The bilateral trade between India and China surged to $118.4 billion in FY24, making China India’s top trading partner again, surpassing the US after two years. However, India’s trade deficit with China has continued to grow, exceeding $83 billion in 2023. Despite the deficit, China is keen on boosting FDI flows into India, which have been sluggish compared to trade volumes.
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