For six years, India ran its China policy on one simple assumption: if you’re economically dependent on a rival with which you share a disputed border, that dependence is a liability.
After the 2020 Himalayan clashes, New Delhi tightened the screws – more scrutiny on Chinese investment, restricted business travel, several deals blocked or slow-walked. The message wasn’t subtle: India would eat the economic cost if it meant shrinking China’s grip on strategically sensitive sectors.
That’s now being dialed back.
On August 6, Indian and Chinese officials sat down in New Delhi for the 36th round of their border-affairs working mechanism – one more step in a thaw that’s already brought easier business travel, renewed commercial ties and a selective loosening of investment rules. Both sides went through the usual language about peace and tranquillity along the Line of Actual Control.
But don’t confuse a quieter border with actual reconciliation. Yes, the 2024 disengagement deals cleared the remaining face-off points at Depsang and Demchok. That’s real progress. It still isn’t full de-escalation. Both sides still have large forces sitting across the wider frontier, and the territorial dispute itself hasn’t moved an inch.
So calling this a rapprochement misses what’s actually going on. India hasn’t stopped competing with China. What’s changed is that New Delhi seems to have worked out that de-risking and decoupling aren’t the same thing – and that building something that can actually rival Chinese manufacturing might require more access to Chinese machinery and know-how in the near term, not less.
The $132 billion reality
The numbers explain the pragmatism. India bought nearly $132 billion in goods from China last fiscal year – more than from any other country. Total trade hit roughly $151 billion, with India’s deficit topping $100 billion.
This isn’t cheap consumer stuff. A big chunk of it is machinery, electronics, chemicals, components – the industrial inputs Indian manufacturers actually run on. This is the contradiction sitting at the heart of India’s whole industrial strategy: New Delhi wants to become the next global alternative to Chinese manufacturing, but a lot of the factories that would make that happen still can’t function without Chinese equipment.
India already learned how expensive that gap can be. After the post-2020 travel restrictions, manufacturers couldn’t get the specialists they needed in the country to install, run and fix Chinese machinery. Reuters, reporting on the eventual visa easing, cited an estimate putting the cost to electronics production at around $15 billion over four years. Eventually India loosened the visa rules for Chinese professionals. The lesson was an awkward one: Restrictions meant to hem in China had been hemming in India’s own factories just as much.
From exclusion to selective access
Investment policy is following the same playbook. In March, India eased some of the curbs it had put in place during the tense border years – not by throwing the door open, but by creating more room for Chinese technology, machinery and capital to flow into Indian manufacturing while keeping a handle on ownership and control.
Under the new rules, investments with up to 10% Chinese ownership can, under the right conditions, get a faster, less restrictive approval path. Selected projects in electronics, batteries and other industrial sectors are moving through more quickly. The logic is straightforward once you see it: Get the capability, don’t let the dependence become permanent.
India’s EV industry is probably the clearest illustration. Chinese carmakers still hit real political and investment walls trying to operate in India. Chinese EV technology is a much harder thing to keep out – Reuters reported in June that Tata Motors is building its premium EVs on a platform licensed from China’s Chery, and other Indian firms are chasing similar licensing arrangements: Get the tech, skip handing over the equity.
India can probably keep Chinese companies at arm’s length. Keeping their technology out of Indian factories is a lot harder.
Self-reliance has not disappeared
None of this means Modi has quietly shelved the self-reliance push. If anything, New Delhi is getting more precise about where the dependence is actually dangerous.
In July, officials flagged roughly $51 billion in critical imports for priority domestic substitution – EVs, solar, textiles, footwear. New Delhi is preparing incentives for domestic polysilicon production specifically to cut reliance on China in the solar chain, according to a Reuters August 7 report.
On the surface, that looks like a contradiction – easing barriers to Chinese capital and technology with one hand while spending real money to cut Chinese imports with the other. It isn’t, really. You can’t ban your way out of dependence before your own alternatives are actually good enough. Push manufacturers onto worse, pricier substitutes too early, and you weaken the very industries you’re counting on to eventually take China on. So the real strategy isn’t to cut China off. It’s closer to: Use what you need from China now, while building toward needing less of it later.
What China gets from the thaw
Beijing has its own reasons to go along with this. India is a big, growing market for Chinese manufacturers right at a time when Chinese firms are hitting more trade barriers and political scrutiny in the US, Europe and elsewhere. China has little reason to walk away from that.
But the dependence isn’t symmetrical. India needs China’s industrial base far more than China needs Indian demand – and that imbalance is exactly why New Delhi wants to reshape this relationship rather than blow it up. A steadier border also lowers the odds that economic friction pushes India to diversify away faster or drives it closer to countries that are trying to counterbalance Beijing.
Border peace as economic infrastructure
Neither government needs to trust the other for this to work. They just need it to be predictable – which is really the right lens for the latest border talks.
Jaishankar keeps repeating that peace along the frontier has to come before normal relations – that hasn’t changed, and neither has the underlying dispute. What’s changed is the economic math. A steadier, if still unresolved, border gives New Delhi more room to keep certain commercial questions separate from the bigger rivalry. China keeps its access to a market it needs. India gets the machinery, tech, capital and skilled hands its manufacturing ambitions depend on.
Neither side has to pretend the geopolitical competition is over. This isn’t integration – it’s controlled interdependence between two rivals figuring out how to compete without holding every economic tie hostage to the border.
So don’t mistake the August border-calming meeting for peace between Asia’s two giants. India and China will keep competing – militarily, technologically, diplomatically, for regional influence, for supply chains, for manufacturing investment. New Delhi will keep trying to diversify away from Chinese imports. Beijing will keep trying to hold onto the edge its industrial scale gives it.
But India seems to have landed on a harder truth about the next phase of this rivalry: you don’t get to self-reliance by cutting the cord before you’ve built something to replace it with. You get there by using today’s dependence to build tomorrow’s independence.
Based in Islamabad, Mansoor Qaisar writes on foreign and public policy and social issues shaping the South Asian region. He can be reached at mansoor.qaisar@gmail.com
