India is signaling a potential thaw in its relationship with China regarding investments in the electronics sector, a move driven by economic realities and a desire to boost domestic manufacturing. This shift comes after a period of strained relations and tightened foreign direct investment (FDI) norms following border clashes in 2020.

Several factors are contributing to this change in stance. Firstly, China's dominance in electronics manufacturing is undeniable. Approximately 60% of global electronics manufacturing takes place in China, making it difficult for India to ignore its potential as a partner in expanding its own manufacturing capabilities. As one government source stated, "Sixty per cent of manufacturing capacity is in China and we want to grow our manufacturing capacity. So some collaboration or some kind of work with China is something we can't avoid".

Secondly, there are signs of improving bilateral relations between the two countries. Tourist visas have been reopened, and External Affairs Minister S Jaishankar recently visited China, signaling a willingness to engage in dialogue and cooperation. "Things are easing (between India and China). There are signals," a government source noted.

Thirdly, Indian companies are keen to explore partnerships with Chinese firms to enhance their technological capabilities and expand their manufacturing base. Dixon Technologies, for instance, has already received approval to form a joint venture with Chinese company Longcheer. Other companies like Micromax and Karbonn are also seeking approvals for similar collaborations. Dixon Technologies has also signed agreements with Chongqing Yuhai Precision Manufacturing Co Ltd and Kunshan Q Technology for manufacturing electronic components. Furthermore, a joint venture with Chinese smart device maker Vivo is reportedly in the works.

The Indian government is taking a pragmatic approach to these partnerships, focusing on genuine technology transfer rather than simple assembly operations. Officials have emphasized that proposals involving real technology transfer and value addition will be prioritized. This is in line with the government's goal of developing a robust electronics ecosystem in India and increasing the local value addition in manufacturing. The government aims to exceed 30% local value addition in the next few years and reach 38% within five years.

However, challenges remain. After the India-China conflict in 2020, India ramped up local smartphone manufacturing, reducing its reliance on Chinese imports. China seemingly retaliated by imposing informal barriers, targeting the electronics sector. Over the past several months, these curbs have intensified, affecting manufacturing inputs and disrupting supply chains.

Despite these challenges, the Indian government appears confident that the industry can adapt and find solutions. For example, regarding restrictions on rare earth magnets, sources suggest exploring workarounds such as importing finished components or seeking alternative suppliers.

Moreover, NITI Aayog has reportedly proposed allowing Chinese firms to hold up to a 24% stake in Indian entities without triggering security checks. The Ministry of Electronics and IT (MeitY) also sees some Chinese investments as crucial for boosting local manufacturing. The Electronics Association has urged the government to implement swift policy measures, warning that continued unofficial restrictions could derail India's electronics manufacturing goals.

Overall, India's signaling of a thaw in restrictions on Chinese investments in the electronics sector reflects a strategic decision to leverage China's manufacturing prowess and technological capabilities for its own economic benefit. While concerns about national security and data protection persist, the government is adopting a pragmatic approach that prioritizes technology transfer and value addition to strengthen India's electronics ecosystem.