India mulls support for Chinese investments, subject to conditions

　　In an effort to boost domestic manufacturing and to reduce reliance on Chinese imports, India is exploring support to Chinese investments in electronics if tied to joint ventures and technology transfer instead of establishing assembly units, according to media reports.

　　The Ministry of Electronics and Information Technology (MeitY) believes that easing the norms for investment by Chinese firms is crucial to help India grow its profile as a manufacturing hub. India is working to expand its manufacturing base and position itself as a viable alternative in the China + 1 strategy pursued by many global companies as they try to protect their interests and navigate the evolving geopolitical shift away from China.

　　This push for Chinese investment comes after a meeting between India's External Affairs Minister S Jaishankar and his Chinese counterpart, Wang Yi, in Beijing earlier this month. The Indian government is keen to ease regulation to improve collaboration between Chinese and Indian companies, and help them grow their manufacturing capabilities and improve the supply chain.

　　This is in line with demands made by the Indian companies for the government to review trade ties with China, particularly concerning Press Note 3, which requires government approval for investments from countries sharing a land border with India. Several Indian companies, including Dixon Technologies and Micromax, have already signed agreements with Chinese companies but are awaiting government approvals.

　　Press Note 3 was issued in 2020 in response to the skirmishes between Indian and Chinese soldiers in the Galwan Valley on the Sino-Indian border. At the time, India had also banned several Chinese apps, leading to their departure from the country. It also ensured non-participation of Chinese vendors, Huawei and ZTE, in the Indian 5G market.

　　Partnership with Chinese firms is crucial for India as it seeks to increase local value addition in electronics from the existing 20% to 30% over the next two to three years. India's Production Linked Incentive (PLI) scheme has helped it grow local value addition to 20% in the last six to seven years and now it is hoping to further increase it.

　　In line with its Atmanirbhar Bharat (Self-reliant India) strategy, the country is also looking to enhance its electronics supply chain through a new 229.19 billion Indian rupee (US$2.65 billion) Electronics Component Manufacturing Scheme, launched earlier this year. This requires expertise from Chinese firms which produce a majority of the world's electronic components.

　　What further complicates the equation is China's latest restrictions on exports of rare earth materials, which can potentially lead to input shortages for Indian smartphone and electronics manufacturers. In addition, Foxconn was in the news recently as several of its Chinese employees, who were in India to train Indian personnel, were asked to return to China. This can delay the manufacturing of Apple's products in India.

　　As India tries to become a manufacturing hub, it needs to find ways of securing partnerships without compromising geopolitical priorities and security considerations.