As India approaches the upcoming BRICS summit, its relationship with China is experiencing a cautious thaw marked by increased diplomatic engagement and a gradual reopening of economic ties. In late July, Indian External Affairs Minister Subrahmanyam Jaishankar met with his Chinese counterpart Wang Yi at the East Asia Summit, followed shortly by visits to China from Foreign Secretary Vikram Misri and National Security Adviser Ajit Doval for border discussions.

Despite this diplomatic momentum, India’s economic stance towards China remains complex and ambivalent. The country continues to seek Chinese investment, technology, and expertise while maintaining concerns about the potential risks associated with deepening economic dependence. Jaishankar has emphasized that India’s long-term goal is to compete with China in manufacturing, underscoring the strategic rationale behind the cautious engagement.

Bilateral trade between the two countries rose to $151.1 billion in the financial year ending March 31, 2024, with China once again becoming India’s largest import source and overtaking the United States as its top trading partner after four years. India’s approach to China has shifted over the years, evolving from openness during Prime Minister Narendra Modi’s initial term to a phase of containment following heightened border tensions in 2020, and more recently moving toward a calibrated reopening.

India’s "Make in India" campaign launched in 2014 sought to attract foreign investment, resulting in substantial economic agreements during early years of Modi’s tenure, including a $22 billion deal package from Xi Jinping’s visit in 2015. Even after the 2017 Doklam standoff, economic cooperation persisted through senior-level dialogues and approaches such as the “China India Plus One” strategy to diversify investments in third countries. Chinese investment in Indian startups expanded significantly, growing twelvefold between 2016 and 2019, supporting many of India’s leading unicorn companies. By 2020, Chinese investments in India were estimated to exceed $26 billion.

However, 2020 marked a turning point amid rising security concerns. India implemented new foreign direct investment (FDI) rules requiring prior government approval for investments from countries sharing land borders, primarily targeting China. This followed the deadly Galwan Valley clash and led to expanded restrictions including bans on various Chinese apps, tightened public procurement regulations and increased scrutiny of Chinese companies operating in India. Visa delays, regulatory inspections, and other pressures reduced Chinese business participation significantly.

After several years of restrictions, India initiated a partial reopening in 2024. Government officials indicated that improved border stability might allow a relaxation of investment controls. The Economic Survey 2023-24 acknowledged the challenges of fully decoupling from Chinese supply chains, and Finance Minister Nirmala Sitharaman publicly supported enhanced economic ties. This shift includes a Production-Linked Incentive (PLI) scheme directed at boosting domestic manufacturing of electrical components, which has attracted renewed interest in partnerships with Chinese firms. Recent policy adjustments have also included the removal of import duties on select electronics components, facilitating benefits for phone manufacturers.

Nonetheless, India faces a contradiction in its economic policy. While it demands capital, technology, and skills largely sourced from China, it simultaneously restricts Chinese entities perceived as security risks. This reflects a tension between economic pragmatism and political imperatives driven by nationalist sentiment. The 2020 FDI restrictions accelerated the politicization of Sino-Indian economic relations rather than initiating a fundamental decoupling.

Despite efforts under the “Atmanirbhar Bharat” self-reliance campaign and selective protectionist policies, India has not significantly reduced its dependence on Chinese imports or developed a robust domestic manufacturing ecosystem. Instead, it has witnessed growing import dependence on Chinese components and machinery, with the trade deficit expanding from $44 billion in 2020-2021 to $112.1 billion in 2023-2024. Manufacturing growth, such as in mobile phones, has often emphasized assembly rather than deep industrial capability.

The recent easing of restrictions represents a shift toward a controlled access model, permitting Chinese capital and technology within defined limits. Resources once considered primarily as risks are now increasingly viewed as necessary for India's manufacturing ambitions.

Observers note that India’s dual approach toward China—as both a critical threat and an indispensable economic partner—poses challenges to achieving a coherent strategy. This complex and often contradictory stance is unlikely to yield decisive outcomes in the near term as India balances geopolitical concerns with economic imperatives.