Macroeconomic pressures are becoming increasingly severe, India relaxes the "Procurement Ban for Key Industry Enterprises"

【Global Times report, reporters Yang Shuyu and Yuan Jirong】Under the twin pressures of intensifying conflict in the Middle East and a cooling domestic economic atmosphere, the Indian government has quietly adjusted its economic policy toward China. Citing a Reuters report that drew on government sources and a document, it said that after India announced earlier this month a relaxation of restrictions on investment in certain sectors of China, on the 27th it further authorized some state-owned enterprises, including India’s Heavy Electricals India Ltd and India’s Steel Authority of India, to procure key equipment from China. Reuters said this policy shift marks the beginning of loosening the economic and trade restrictions toward China that India tightened after 2020. Behind it are India’s increasingly severe macroeconomic pressures and its deep dependence on China’s supply chain.

Macroeconomic pressures force policy changes

According to the latest order issued by the Indian government, India’s largest state-owned power equipment manufacturer, Heavy Electricals India Ltd, has been allowed to purchase 21 kinds of key equipment from China. These equipment are crucial for the development of India’s power infrastructure, and the key equipment import restrictions targeting Chinese companies have prevented multiple power infrastructure projects in India from moving forward.

Government sources said that India’s Steel Authority of India and other state-owned enterprises involved in gasification also received similar authorizations, allowing them to purchase key components from Chinese companies. In addition, the order issued by the Indian government this month also simplified the procedures for Chinese companies to participate in Indian government projects.

Behind the policy shift are the severe challenges facing India’s economy. In 2020, New Delhi once tightened procurement and investment by Chinese companies in equipment and increased security reviews of Chinese investment in India, and several investment plans stalled. However, these restrictions have imposed a heavy cost on India’s economy. Data show that India’s direct investment from China plunged from 163.8 million USD in FY2020 to 2.7 million USD in FY2025. This steep drop has directly affected the expansion of India’s manufacturing sector. Reuters reported that in 2022, a roughly 1 billion USD electric-vehicle joint venture investment plan proposed by Chinese companies was shelved, which dragged down the development and upgrading pace of India’s domestic auto industry chain. The Economic Times reported that many Indian businesses, especially manufacturing companies, said that procurement and investment restriction measures targeting Chinese companies harmed their operations and weakened the Indian government’s resolve to build a regional factory hub.

India now faces mounting internal and external pressures. With the global trade order being reshaped as the U.S. imposes additional tariffs, India is facing unprecedented competitive pressure. Meanwhile, recent conflicts in the Middle East have severely disrupted India’s oil and gas supplies, sending energy prices soaring and pushing the Indian rupee versus the U.S. dollar to a historical low. Citing remarks by Rajani Sinha, chief economist at rating agency CareEdge, the Financial Times said that against the backdrop of rising global uncertainty and intensifying geopolitical conflicts, strengthening foreign direct investment inflows is especially important. Sinha added, “With Brent crude prices staying high, the risk of widening the current account deficit increases. This could further affect the balance of payments and the Indian rupee, so supporting foreign capital inflows becomes even more critical.”

Trade deficit highlights dependence on China

The continued expansion of India’s trade deficit with China is also seen as another important factor driving the policy adjustment. According to data from India’s Ministry of Commerce and Industry, from April 2025 to this year’s February, India’s imports from China totaled 119.56 billion USD, higher than 103.77 billion USD in the same period of the previous fiscal year. Data show that in the first 11 months of the current fiscal year, India’s trade deficit with China reached 102.02 billion USD, while the trade deficit for the full previous fiscal year was 99.21 billion USD. This means that in the fiscal year ending in March this year, India’s trade deficit with China will cross the “one-trillion-USD” mark for the first time, more than double compared with when Prime Minister Modi took office in 2014. Ajay Srivastava, founder of the Global Trade Research Initiative based in New Delhi, expects the full-year trade deficit to be “close to 111 billion USD.” Srivastava believes that the steadily expanding trade deficit is mainly attributable to India’s “lack of production,” such as in electronic components, electric vehicle batteries, solar panels, machinery, chemical products, and intermediate products of pharmaceuticals.

Banu Murthy, director of the Chennai Madras School of Economics, said that compared with India, China not only has advantages in terms of the scale of industrial production but is also technologically ahead in specific products, even though India also produces goods such as mobile phones. He noted that its raw materials and parts are “mainly supplied by China.” He also pointed out that India exports iron ore to neighboring countries and imports finished products from China. “In that sense, the value added created by Chinese companies is much higher,” Banu Murthy said. He believes that for India’s manufacturing sector to catch up with China’s level, it still needs to go a long way.

Business community in India feels a brief respite

Although relaxing the import and investment restrictions on key equipment from China has still sparked some debate within India’s political circles, this policy adjustment has received a positive response in India’s business community and academia.

Kahar, a senior partner at the Indian business analytics firm Saraf and Partners, analyzing for India’s “Today Business,” said, “Historically, many Indian startups relied on Chinese venture capital and strategic investors in their early stages and growth stages.” A report by The Economic Times, citing analysis from Rahul Turki, a partner in the India division of the consulting firm Grant Thornton, said that from an investment perspective, easing restrictions on Chinese companies will ultimately help the survival of Indian startups, deep-tech enterprises, and manufacturing industry chains such as electronic components and solar supply chains. Srivastava said that unless India builds competitive domestic production capacity or achieves substantial diversification of its supply chains, not only will India’s trade deficits with major manufacturing economies such as China remain entrenched, it will also hinder India from gaining benefits from the development of regional industry chains.

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