India debates increased Chinese investment: can benefits outweigh geopolitical risks?

Analysts said the chief economic adviser’s call to attract more Chinese FDI should be heeded if India hopes to achieve its growth objectives

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Indian Prime Minister Narendra Modi, left, talks with Chinese President Xi Jinping at a signing ceremony by foreign ministers during the BRICS summit in Goa, India, in 2016. Photo: AP

Published: 5:25pm, 25 Jul 2024Updated: 5:30pm, 25 Jul 2024

A new report from the chief economic adviser of India calling for the country to attract more foreign direct investment (FDI) from China has raised eyebrows due to New Delhi’s strained relations with Beijing over their border disputes.

The report concludes that more FDI from China would have numerous benefits, such as enhancing local manufacturing and export market access. Analysts agreed, arguing India should not let geopolitics stand in the way of economic progress despite the risks Beijing’s increased financial influence might bring.

While addressing a press conference on the launch of the country’s annual Economic Survey (ES) report on Monday, Chief Economic Adviser V. Anantha Nageswaran emphasised the importance of attracting FDI from China to enhance India’s exports to the United States and other Western countries, thereby addressing India’s escalating trade deficit with Beijing.

With the US and Europe shifting their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing them from its neighbour, the report concludes.

The ES is a highly influential annual report prepared by the Ministry of Finance that reviews the country’s economic development over the past financial year and provides insights into the performance of various sectors to help the government formulate strategic economic policies.

A bronze bull statue outside the Bombay Stock Exchange (BSE) building in Mumbai, India. Photo: Bloomberg

This year’s report notes that the West is shifting towards a “China plus one strategy” of diversifying manufacturing and supply chains to reduce dependency on Beijing and mitigate associated risks. It argues India can benefit from this in one of two ways – integrating into China’s supply chain or attracting FDI from Beijing.