China and the Indian Economy

China is an extremely important economic partner for India. India imports a wide variety of goods – from capital goods and heavy machinery to electronics and chemical ingredients for its generic pharma industry – from China. Chinese investment has been vital in supporting India’s startup ecosystem — 18 out of India’s 30 uber-successful unicorn companies, including BYJU’s, Paytm, Ola, Swiggy, and Flipkart derive significant proportions of their investment from Chinese corporate giants like Alibaba and Tencent. Between 2016 and 2019, Chinese investment in Indian companies has grown twelve-fold.

Despite China’s economic importance to India, the economic relationship between the two countries is extremely unbalanced. It is characterized by China enjoying a massive trade surplus, while direct and indirect trade barriers imposed by the Chinese government restrict access for Indian goods and services. There’s also deep concern within India about cheap Chinese imports further undermining the country’s ailing manufacturing sector.

We, therefore, believe that India must approach the economic relationship with China from a strategic perspective, which would mean inviting investments while offering conditional market access. This entails:

  • leveraging market access for broader political objectives in the bilateral relationship;
  • ensuring that there are purposeful steps taken towards meeting a publicly-stated target for the reduction of the trade deficit within a fixed timeframe;
  • inviting Chinese investments to boost exports and infrastructure development;
  • and undertaking domestic economic reforms to enhance the competitiveness of Indian manufacturing.