India-China Relations: Economic Partners and Political Opponents

India and China, Asia’s two largest economies, have developed a complex relationship characterized by deepening economic ties alongside persistent political antagonism. Bilateral trade reached approximately USD 125 billion in 2023, making China India’s largest trading partner, accounting for 14% of its total trade (Ministry of Commerce, 2024). Despite this economic interdependence, unresolved border disputes, notably in Ladakh, and divergent geopolitical interests sustain strategic rivalry. India’s defense budget of INR 5.94 lakh crore in 2023-24 reflects these security concerns. This duality necessitates a calibrated policy balancing economic cooperation with safeguarding national security.

Legal and Institutional Framework Governing India-China Economic Relations

India’s trade and investment relations with China operate within a robust legal framework. Article 253 of the Indian Constitution empowers Parliament to legislate for implementing international agreements, including trade pacts with China. The Foreign Trade (Development and Regulation) Act, 1992 governs trade policy, while the Customs Act, 1962 regulates import-export duties. The Special Economic Zones Act, 2005 facilitates export-oriented growth, indirectly impacting trade with China. Supreme Court rulings, such as Essar Oil Ltd. v. Haldia Petrochemicals Ltd. (2014), affirm the state’s right to impose trade restrictions on national security grounds, relevant amid geopolitical tensions.

• MEA manages diplomatic dialogue and political relations with China.
• DPIIT regulates Foreign Direct Investment (FDI) and trade policies affecting Chinese investments.
• CBIC oversees customs duties and trade regulations at the border.
• NITI Aayog formulates economic strategies considering China’s role in supply chains.
• DRDO develops defense technologies in response to China’s military advancements.
• WTO serves as a platform for resolving trade disputes involving India and China.

Economic Dimensions: Trade, Investment, and Sectoral Impact

Bilateral trade between India and China stood at USD 125 billion in 2023, with India’s trade deficit exceeding USD 60 billion (Ministry of Commerce, 2024). Indian exports to China grew at a compound annual growth rate (CAGR) of 15% between 2018-2023, while imports grew at 10%, reflecting sustained demand for Chinese manufactured goods. Chinese FDI in India was valued at USD 1.5 billion in 2023 (DPIIT Annual Report, 2024), concentrated in technology and infrastructure sectors. However, India’s manufacturing sector growth slowed to 4.5% in FY23, partly due to supply chain disruptions linked to geopolitical tensions (Economic Survey 2023-24).

• India’s trade deficit with China is among the largest bilateral deficits globally, raising concerns about economic dependence.
• Chinese imports dominate Indian markets in electronics, pharmaceuticals, and machinery.
• India’s exports to China are largely raw materials and intermediate goods, limiting value addition.
• FDI inflows from China face regulatory scrutiny due to national security concerns, especially post-Galwan clashes.
• Defense budget increase signals resource allocation to counterbalance China’s military assertiveness.

Strategic Rivalry: Political Conflicts and Security Concerns

Despite economic ties, India and China remain strategic rivals due to unresolved border disputes, primarily in Aksai Chin and Arunachal Pradesh. The 2020 Galwan Valley clash underscored the fragility of peace along the Line of Actual Control (LAC). Geopolitical competition extends to regional influence in the Indian Ocean Region, South Asia, and multilateral forums. India’s response includes infrastructure development along the border, enhanced military capabilities, and strategic partnerships with the US, Japan, and Australia.

• China’s Belt and Road Initiative (BRI) excludes India, reflecting geopolitical mistrust.
• India’s participation in the Quad counters China’s regional ambitions.
• Border infrastructure projects aim to reduce strategic vulnerabilities.
• National security exceptions have been invoked to restrict Chinese investments and apps.
• Diplomatic engagements continue but remain constrained by mutual suspicion.

Comparative Analysis: India-China vs US-China Economic and Strategic Relations

Critical Policy Gaps in India’s China Strategy

India lacks a comprehensive economic security framework tailored to China’s unique challenges. Unlike China’s stringent outbound investment controls and strategic industrial policies, India’s mechanisms for screening Chinese investments and securing critical supply chains remain fragmented. This exposes India to vulnerabilities in technology transfer, intellectual property risks, and strategic dependencies in sectors like telecommunications and pharmaceuticals. Enhanced coordination among MEA, DPIIT, NITI Aayog, and DRDO is needed to integrate economic and security imperatives.

• Absence of a unified China-specific economic security policy.
• Limited capacity for real-time supply chain risk assessment.
• Inadequate regulatory mechanisms for technology transfer controls.
• Need for strategic diversification of critical imports and investments.
• Greater emphasis on indigenous manufacturing and R&D.

Way Forward: Balancing Economic Cooperation with Strategic Autonomy

India must pursue a calibrated approach that preserves economic engagement while safeguarding national security. This includes strengthening investment screening processes, diversifying supply chains, and accelerating indigenous manufacturing under initiatives like Make in India. Diplomatic efforts should continue to manage border tensions and explore confidence-building measures. Strategic partnerships with like-minded countries can enhance India’s geopolitical leverage. Institutional reforms to integrate economic and security policymaking will improve resilience against external shocks.

• Develop a comprehensive China-specific economic security framework.
• Enhance coordination between MEA, DPIIT, DRDO, and NITI Aayog.
• Promote supply chain diversification and critical technology indigenization.
• Maintain diplomatic dialogue to manage border disputes and reduce conflict risks.
• Leverage multilateral forums and strategic partnerships for balanced engagement.