The macroeconomic pressure is becoming increasingly severe, and India has relaxed the "ban on Chinese enterprises' procurement in key industries"
Under the dual pressure of escalating conflicts in the Middle East and a cooling domestic economic atmosphere, the Indian government has quietly adjusted its economic policy towards China. According to government sources and a document cited by Reuters, India further authorized some state-owned enterprises, including Indian Heavy Industries and the Indian Steel Authority, to purchase critical equipment from China on the 27th after announcing earlier this month that it would relax restrictions on investment in specific areas of China. Reuters believes that this policy shift marks the loosening of India's tightened economic and trade restrictions on China since 2020, driven by India's increasingly severe macroeconomic pressure and deep dependence on China's supply chain.
Macroeconomic pressure drives policy adjustments
According to the latest order issued by the Indian government, India's largest state-owned power equipment manufacturer, Heavy Electric India, has been granted permission to purchase 21 types of critical equipment from China. These devices are crucial for the construction of India's power infrastructure, and import restrictions on key equipment for Chinese companies have resulted in multiple power infrastructure projects in India being unable to proceed.
Government sources have revealed that the Indian Steel Authority and other state-owned enterprises involved in coal gasification have also obtained similar authorizations to purchase key components from Chinese companies. In addition, the order issued by the Indian government this month has simplified the procedures for Chinese companies to participate in Indian government projects.
Behind the policy shift is the severe challenge facing the Indian economy. In 2020, New Delhi tightened its procurement and investment of equipment from Chinese companies and increased its security review of Chinese investments in India, causing multiple investment plans to come to a standstill. However, these restrictive measures have come at a heavy cost to the Indian economy. Data shows that India's direct investment from China plummeted from $163.8 million in fiscal year 2020 to $2.7 million in fiscal year 2025. This cliff like decline directly affects the expansion process of India's manufacturing industry. According to Reuters, a joint venture investment plan for electric vehicles worth approximately $1 billion proposed by Chinese companies has been put on hold in 2022, which has hindered the development and upgrading of India's domestic automotive industry chain. The Times of India reported that many Indian companies, especially manufacturing companies, have stated that procurement and investment restrictions against Chinese companies have damaged their operations and weakened the Indian government's policy determination to build regional factory centers.
Currently, India is facing further intensified internal and external pressures. With the global trade restructuring triggered by the US tariffs, India is facing unprecedented competitive pressure. At the same time, the recent Middle East conflict has severely disrupted India's oil and gas supply, causing energy prices to soar and the Indian rupee to fall to a historic low against the US dollar. The Financial Times quoted Rajani Sinha, Chief Economist of rating agency CareEdge, as saying that strengthening foreign direct investment inflows is particularly important in the context of increasing global uncertainty and geopolitical conflicts. Sinha added, "In the context of high Brent crude oil prices, the risk of a widening current account deficit has increased, which may further affect the balance of payments and the Indian rupee, making it even more crucial to support foreign investment inflows
Trade deficit highlights dependence on China
The continued expansion of India's trade deficit with China is also considered another important factor driving policy adjustments. According to data from the Indian Ministry of Commerce and Industry, India's imports from China from April 2025 to February this year amounted to $119.56 billion, higher than the $103.77 billion for the same period in the previous fiscal year. Data shows that in the first 11 months of this fiscal year, India's trade deficit with China reached $1020.2 billion, compared to a full year trade deficit of $99.21 billion in the previous fiscal year. This means that in the fiscal year ending in March this year, India's trade deficit with China will exceed the "$100 billion mark" for the first time, more than doubling since Modi took office as Prime Minister in 2014. Ajay Srivastava, founder of the Global Trade Research Initiative based in New Delhi, predicts that the annual trade deficit will be "close to $111 billion". Srivastava believes that the continuously expanding trade deficit is mainly attributed to India's "insufficient production", such as electronic components, electric vehicle batteries, solar modules, machinery, chemicals, and pharmaceutical intermediates.
Banumurti, Dean of the Madras School of Economics in Chennai, admitted that compared to India, China not only has an advantage in industrial production scale, but also leads in technology in specific products. Although India also produces products such as mobile phones, its raw materials and components are mainly supplied by China. He also pointed out that India exports iron ore to neighboring countries and imports finished products from China. In this sense, the added value created by the Chinese is much higher. "Banumurti believes that India's manufacturing industry still needs to go a considerable distance to catch up with China's level.
Indian business community feels breathless
Although the relaxation of China's import and investment of key equipment still sparked some controversy in the Indian political arena, this policy adjustment has received positive responses from the Indian business and academic communities.
According to Kahar, Senior Partner at Saraf and Partners, an Indian business analysis firm, "Historically, many Indian startups have relied on Chinese venture capital and strategic investors in their early and growth stages." The Times of India reported, citing Rahul Turki, Partner at Deloitte Touche Tohmatsu India, that from an investment perspective, relaxing restrictions on Chinese companies will ultimately help the survival of Indian startups, deep tech companies, as well as manufacturing industry chains such as electronic components and solar energy supply chains. Srivastava's analysis suggests that unless India establishes competitive domestic production capacity or achieves substantial diversification of its supply chain, not only will India's trade deficit with major manufacturing economies such as China become deeply entrenched, but it will also hinder India's ability to benefit from the development of regional industrial chains.