Amidst rising trade tensions with the United States, India is reportedly considering relaxing foreign direct investment (FDI) restrictions for Chinese companies in specific sectors. This potential shift comes as India faces increased tariff pressures from the US, prompting a search for alternative sources of capital, technology, and supply chain support.
The Indian government is mulling a plan to ease COVID-era restrictions on Chinese FDI, potentially allowing investments of 20-25% in manufacturing, renewable energy, and auto components through the automatic route. However, strategic sectors like telecom, defense, and digital infrastructure would remain off-limits. While Chinese firms would still require government clearance, the process may be simplified and expedited.
This move comes at a time when India's exports are facing headwinds due to increased US tariffs. In August 2025, the United States, under President Trump's administration, imposed a 50% tariff on most Indian goods, citing India's continued imports of Russian crude oil and defense hardware. These tariffs, which add to an existing 25% duty, could make Indian products more expensive in the US, potentially leading to a reduction in exports. Sectors like textiles, gems, machinery, engineering goods, chemicals, leather, and auto parts could be significantly affected.
The US tariffs have placed nearly half of India's yearly exports to the US, worth over $85 billion, at risk. Experts estimate that exports from affected sectors could plummet, threatening hundreds of thousands of jobs across India's export hubs.
To counter the impact of the US tariffs and global trade uncertainty, the Indian government is launching a ₹20,000-crore Export Promotion Mission. This mission aims to support exporters, improve competitiveness, and strengthen "Brand India" in international markets. The plan focuses on improving trade finance and brand visibility while developing export hubs and supporting MSMEs.
India needs fresh inflows to meet its target of $100 billion in FDI by FY26. Experts suggest that Chinese investments, if carefully managed, could help bridge this gap. China dominates global supply chains in areas crucial for India, such as rare earth magnets and tunnel boring machines.
Despite strained relations since the Galwan Valley clashes in 2020, trade between India and China has continued to grow. Imports from China surged from approximately $95 billion in FY22 to over $113 billion in FY25. India has also begun to ease travel restrictions, resuming tourist visas for Chinese nationals and restarting direct flights between Delhi and Beijing.
While security concerns remain, India recognizes the importance of engaging with the world's second-largest economy, especially amid tariff wars, slowing FDI, and global supply chain disruptions. As India pursues its ambition of becoming a developed nation by 2047, resilient supply chains and access to capital and technology will be crucial. The potential easing of FDI restrictions for Chinese companies reflects a pragmatic approach to navigating the evolving global economic landscape.
