Bilateral Trade Remains Substantial Between The Two Countries, But It is significantly imbalanced. In FY2024-25, India’s Two-Way Merchandise Trade With China Reached Approximately US $ 127.7 billion, Making China India’s Second-Largest Trading Partner After the us. However, this camera at the cost of a record trade deficit Sectors.

In light of these dynamics, indian policymakers have adopted a cautious approach. U under a policy intimate in 2020, all foreign direct investment (FDI) from china and other countries sharing landers with India Must Obton Prior Governant Approval. In April 2025, Commerce Minister Piyush Goyal Reitrated that India “Does not intend to encourage” Foreign Direct Investment (FDI) From China. By the end of 2024, Chinese first about about 0.37 per cent of India’s total FDI inflows. While eases to restrictions in non-sensitive sectors such as such as Solar Energy and Batteries May Be Helpful, The prevailing geopolitical climate has stalled such proposals. Instead, India has intensified scrutiny of chinese technology and infrastructure investments, banned dozens of chinese apps, and maintained strict regulatory oversighth over the telecom and electronics sectors.

China’s Overter Support for Pakistan has Further Deepened Indian Scepticism. Beijing’s financing and arming of a country India considers a direct security threat has amplified concerns about the strategic costs of deper economic ties. In response, India has adopted diversification strategies, including strengting Economic partners “Make in India” Initiative. These measures aim to reddue dependency on any single partner while retaining space for selective engagement with china. This Hedging Strategy Reflects A Broader Shift in India’s Foreign Economic Policy – From Passive Openness to Strategic Selectivity.

Trust Trade Without

India’s Answer to the widening trade gap with china is a two-pronged strategy: Build deper commercial coalitions with Trusting Partners and Turbo-Charge Domestic Manufacturing So That Tomorrow. Through, not around, India. The result is a deliberate “China-Plus-One” Realignment Threads Threads Through New Delhi’s Engagements with Washington, Tokyo, and Asean While anchoring at Home Unde And Production and Production. (Pli) drives. This strategy is not just about trade – it is about getting India’s place in a reconfigured global production map. Such Shifts Reflect the growing convergence of commercial logic with strategic alignment.

Washington has become India’s livest goods-drive partner for the four consecutive years, Resulting in India having a healthy surplus of more than us $ 41 billion. The new backbone of that relationship is the initiative on critical and emerging technologies (icet), which has already green-liquted joint semiconductor, AI, and space proded Both Governant. Export-Control frictions.

Tokyo complements this pivot by underwriting supply-chain security and industrial upgrading. More than four-four-fifths of Japanese first in India intend to expand over the next two years, according to jetro’s latest global survey, by far the highst figure among marmjor host economies. At The Policy Level, The Supply-Chain Resilience Initiative (SCRI), In Collaboration with Japan and Australia, Has Targetted Investment In Electronics, Batteries, And Rare-Earth Processing Hubs in India, Spicy. To mitigate single-country dependency. Japan’s Role is pivotal, not just as an investor, but also as a Norm-Setter for Resilient and transparent Value chains.

Southeast Asia forms the third pillar. India’s two-way goods trade with asean hovers around US $ 110 billion. Still, both sides have agreed to fast-track a review of the Asean-India trade in goods agrement to reduce non-Tariff Barriers and open services markets. Simultaneously, niche collaborations-such as semiconductor ecosestem talks with singapore and default-manufacturing tie-up indonesia-are knitting india into “china -plus-one” production network. Across the region. This Eastward Economic Orientation Reinforces India’s Indo-Pacific Vision and Places Regional Connectivity At Its Core.

De-Risking Growth

External diversification is reinforced at home by the pli programs, which span 14 sectors with approved investments of approximately US $ 18.7 billion. One headline success is electronics: India has become the world’s second-largest mobile phone maker, producing 99 per cent of the handsets. Smartphone Exports Alone Surged 55 Per Cent in FY 2024-25 to US $ 24.1 bill Higher-value manufacturing. India’s industrial push is not only about import substitution-It is about export-rate competitiveness in Sunrise Sectors.

India’s evolving economic strategy actingly hinges on depening ties with alternative partners au-pacificic. This pivot is also visible in recalibrating subregonal engagement through Bimtec (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation). As saarc remains paralyssed by India -Pakistan tensions, bimstec has Emerged as the primary forum for regional cooperation, offering a platform that bypasses islamabad and aligns with India’s act policy.
At the 6th bimstec summit in bangkok in april 2025, Member States adopted the bangkok vision 2030. Geoeconomic Hub. For India, Bimtec Complements Its External Diversification Efforts By Linking Its Northestern States to Southeast Asian Economies, Spurring Regional Inflational Inflectual Infracttractuer, Trade, And Logistical Corridors.

Finally, India’s evolving engagement with china reflects a strategy of managed rivalry – Balancing selection with strategic hedging. Rather Than Decoupling, India is recalibrating its economic and diplomatic posture by diversifying partners, securing resilient supply chains, and reducing dependence on chaina, seijing devs. Pakistan. This marks a shift from reactive diplomacy to a tactically layered approach, where Competition is contained without collapsing ties.

The writer is a felow and lead, world economies and sustainability at the center for new economic diplomacy (cned) at Observer Research Foundation (Orf)