Guardrails against dependency | India’s cautious embrace of China

India’s ambition of becoming a $5 trillion economy, a manufacturing hub, and a key player in global value chains hinges on how it manages its most complex bilateral equation with China. Prime Minister Narendra Modi’s visit to Tianjin for the Shanghai Cooperation Organisation (SCO) summit signifies his inaugural trip to China in seven years.

This occasion extends beyond mere diplomatic engagement; it constitutes a pivotal reset in one of the most consequential bilateral relationships globally. While India and China have a history characterised by competition and mistrust, they also share a future where economic engagement is inevitable. The pertinent challenge is not whether India should engage with China, but rather how to do so in a manner that promotes growth while safeguarding strategic autonomy.

A reset opportunity

The timing of Prime Minister Narendra Modi’s visit is profoundly significant; it occurs amidst a new strategic challenge. In late August, the United States increased tariffs on a wide array of Indian exports, including textiles, gemstones, chemicals, and seafood, raising the total duties to an exceptional 50 per cent. These tariffs are not just economic barriers, they are geopolitical weapons.

India is currently facing mounting pressure from Washington, even as it recalibrates its position amid global supply chain restructuring, climate imperatives, and shifting global power dynamics. Within this context, engaging with Beijing strategically provides India with an alternative and a stabilising factor, presenting an opportunity to transition from reactive measures to a deliberate and strategic approach.

China is India’s largest trading partner, with bilateral trade reaching $118.4 billion in FY2024, bringing significant benefits. China held a ~15.06 per cent share in India's total imports in FY2024. India imported $101.74 billion from China, while it imported a total of $675.42 billion from the rest of the world. China plays a crucial role in supporting India’s core industries through its imports. In particular, China supplies nearly 40 per cent of India's electrical machinery, which is essential for electronics, telecom, IT hardware, automotive components, and renewable energy.

Additionally, China's boilers, and machinery parts are vital for power generation, heavy engineering, and infrastructure, allowing India to scale up its energy projects and industrial capacity. India is also heavily reliant on China for organic chemicals, with China supplying 60-70 per cent of its active pharmaceutical ingredients (APIs) and intermediates used in the production of textiles, dyes, and agrochemicals.

Furthermore, China's plastics and related articles are essential for India’s packaging, FMCG, textiles, automotive, and construction sectors, serving as key inputs in export-driven supply chains. Ultimately, Chinese fertilisers, such as urea and DAP, are crucial for Indian agriculture and food production, directly impacting crop yields and food security.

Modi’s visit to China also facilitates opportunities for co-operation in sectors directly aligned with India’s developmental priorities. In the realm of green energy, both nations are already recognised as global leaders. Joint ventures in solar manufacturing, electric vehicle supply chains, and battery storage have the potential to reduce costs, expedite adoption, and generate employment, thereby contributing to their climate objectives.

In the digital domain, although India must continue to protect its critical infrastructure, there exists potential for collaboration in digital commerce frameworks, fintech interoperability, and startup ecosystems, thereby providing India’s IT-BPM industry with a significant presence in Chinese markets. Equally vital are softer connections, revitalising tourism, educational exchanges, and cultural ties, which can reduce mistrust and simultaneously diversify India’s service export portfolio.

Guardrails that cannot be compromised

Constructive engagement should not lead to complacency. India needs to maintain strict guardrails to protect its sovereignty and competitiveness.

Critical sectors like telecom, defence technologies, and digital infrastructure must be carefully monitored, especially considering past vulnerabilities in 5G and surveillance systems. Investment from China should be encouraged only if it clearly boosts India’s industrial capabilities and does not give Beijing strategic leverage.

Simultaneously, supply chain resilience should be strengthened through diversification by forming deeper partnerships with Vietnam, Taiwan, the European Union, and West Asia to prevent reliance on a single source. Most importantly, re-engaging with China must not weaken India’s commitments to the Quad, the Indo-Pacific framework, or its strategic relations with the US and Europe.

Modi’s participation in the SCO highlights India’s expanding international stature. As an active member of the G20, BRICS, and the Quad, India demonstrates its ability to bridge various divides. Using this influence, New Delhi can urge Beijing to implement reforms in trade and technology, including transparent digital regulations, climate finance collaboration, and more equitable intellectual property policies.

Looking ahead

The true impact of this visit will be measured by the results, not appearances. Beyond whether Indian pharmaceutical companies gain access to Chinese hospitals or IT firms enter China’s digital economy, the real test will be whether such engagements translate into tangible benefits at home.

Will Indian manufacturers see more stable supply chains and lower input costs? Will farmers benefit from easier access to fertilisers and agrochemicals? Will joint renewable energy ventures create jobs and reduce India’s dependence on imported technology? These are some of the questions that will determine if the visit charts a new path.

Simultaneously, India must clearly communicate to its citizens. People and businesses need reassurance that increased engagement is not a concession, but a strategic decision aimed at creating jobs, reducing vulnerabilities, and expanding opportunities.

Chandrika Raghavendra is assistant professor (economics and international business), Great Lakes Institute of Management, Chennai.