NEW DELHI – India has started clearing the way for Chinese investment by approving proposals involving companies from China.

Narendra Modi-led coalition government opted for the move after an annual review of Indian economy presented last month argued in favor of attracting investment from China.

It was in 2020 when the Modi government – a time when the Hindu nationalist BJP was in power with a strong majority – had imposed restrictions on Chinese investment after the deadly border skirmishes.

According to The Economic Times which quoted sources, an inter-ministerial panel has cleared investment proposals in the electronics manufacturing sector, which include some Chinese companies and others with connections to the neighboring country.

These proposals involve Chinese electronics giant Luxshare, a vendor for Apple, as well as a joint venture between Bhagwati Products (Micromax) and Huaqin Technology, with the latter holding a minority stake.

WHY THIS CHANGE? THE BACKGROUND

The decision taken in 2020 was based upon purely political considerations. It was also greatly influenced by the fact that Modi portrays himself as the champion of Indian nationalism. But his version is a product of the extreme Hindu nationalism which leaves no or very little room for a holistic approach.

However, the election results earlier this year saw the BJP losing simple majority amid the tall claims made about a thumping victory by gaining a two-thirds majority. Hence, Modi was forced to form a coalition government comprising even those parties which aren’t part of his National Democratic Alliance (NDA).

The election results meant that the Indian people had rejected the economic development vision of Modi – reliance on a high growth rate while banking on infrastructure development and high-tech industries while favoring the big businesses.

But the net result was: concentration of wealth that is widening the rich-poor divide and lack of employment opportunities for the millions of youths.

Thus, the economic factors coupled with a silent majority frightened by the plans about introducing constitutional changes revolving around the Hindutva ideology made the people to cast their vote against Modi.

IT ISN’T THAT SIMPLE

Domestic factors and political compulsions aside, global economy and the desire to make India an economic power are also in play.

“As the US and Europe shift 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 from China, adding minimal value, and then re-exporting them,” said India’s Chief Economic Adviser V Anantha Nageswaran said in the annual economic survey.

To boost its global exports, Nageswaran said, New Delhi can either integrate into China’s supply chain or promote foreign direct investment (FDI) from China.

“Among these choices, focusing on FDI from China seems more promising for boosting India’s exports to the US, similar to how East Asian economies did in the past.”

The report said choosing the FDI strategy “appears more advantageous than relying on trade” as it can arrest the growing trade deficit New Delhi has with Beijing, the top exporter for India.

And this report triggered a debate that has seemingly resulted in this policy shift.

YES! WE NEED FDI

Soon after the report was tabled in Lok Sabha [India’s Lower House of Parliament], Finance Minister Nirmala Sitharaman had backed her economic adviser.

She told a press conference that the adviser’s office works at an “arm’s distance” but “that doesn’t mean I am disowning the suggestion.” becoming the first minister to back such a move.

India tightened its scrutiny of investments from Chinese companies and halted major projects since 2020.

India’s net FDI inflow dropped by 62.17% to $10.58 billion in 2023-24, a 17-year-low, from $27.98 billion the previous year, official data showed.

Meanwhile, the Chinese investment will also help tackle the other challenge – Indian youth unemployment –  which is one of the biggest issues Modi is facing on domestic front.