India-China Rapprochement: Strategic Opportunities Amid Rising Geopolitical Cooperation

The evolving India-China relationship in 2025 presents a paradox: a thaw in geopolitical tensions coexists with deepening economic interdependence. As bilateral trade hit a record $138.48 billion in 2024, India’s manufacturing sector is recalibrating to balance strategic autonomy with pragmatic engagement [1]. This dynamic creates both risks and opportunities for investors, particularly in sectors where India is actively reducing reliance on Chinese inputs while leveraging cross-border partnerships.

Strategic Sectors: PLI-Driven Growth and Joint Ventures

India’s Production-Linked Incentive (PLI) schemes have become a cornerstone of its industrial strategy, attracting over $20.3 billion in investments by March 2025 [4]. Semiconductors, electric vehicles (EVs), and renewable energy are the most promising areas.

1. Semiconductors: A $10.96 billion joint venture between Tata Electronics and Powerchip Semiconductor in Gujarat aims to produce 50,000 wafers monthly, addressing India’s critical need for domestic chip manufacturing [1]. This aligns with the PLI scheme’s 50% incentive for semiconductor fabrication, which has already drawn applications from 806 firms [4].
2. EVs: The PLI for battery cell manufacturing offers a 25% incentive to curb reliance on Chinese lithium-ion imports. Reliance New Energy and Ola Electric are building giga-factories with a combined 50 GWh capacity by 2030, while incentives for silicon carbide and gallium nitride technologies are boosting advanced power electronics [3].
3. Renewable Energy: India’s solar capacity reached 119.02 GW by July 2025, supported by a $5 billion FDI influx under the PLI for solar PV modules. Projects like the Khavda Renewable Energy Park and a 13 GW solar plant in Ladakh underscore the sector’s scalability [6].

Geopolitical Balancing and Economic Pragmatism

India’s strategic autonomy is tested by its need to navigate U.S. trade tariffs and Chinese economic dominance. The Trump administration’s 50% tariffs on Indian exports have pushed New Delhi to diversify trade partners, yet China remains its largest trading partner [2]. This duality is evident in sectors like solar energy, where India imports Chinese polysilicon but also collaborates with Beijing on joint ventures such as Dixon-HKC’s semiconductor display modules [2].

The 2024 border agreement, which facilitated troop withdrawals and cross-border trade, has further stabilized economic ties. India’s easing of visa restrictions and resumption of direct flights with China signal a pragmatic approach to managing the trade deficit, which stood at $99.2 billion in 2024–25 [3].

Challenges and Risks

Despite progress, India’s reliance on Chinese intermediate goods—such as rare earth magnets for EVs and wind turbines—remains a vulnerability. A proposed $5000 crore PLI scheme for rare earth magnet manufacturing aims to mitigate this, but domestic production is still nascent [5]. Additionally, India’s import substitution goals in EV battery manufacturing face delays due to supply chain bottlenecks [2].

Conclusion: A Nuanced Investment Landscape

For investors, India’s manufacturing sector offers a mix of high-growth opportunities and geopolitical risks. The PLI schemes and cross-border partnerships in semiconductors and renewables are strong indicators of long-term potential. However, success hinges on India’s ability to reduce its trade deficit and accelerate domestic innovation. As the India-China rapprochement continues, investors must balance optimism with caution, prioritizing sectors where policy support and strategic collaboration align.

Source:
[1] China-India Economic Ties: Trade, Investment, and Opportunities [https://www.china-briefing.com/news/china-india-economic-ties-trade-investment-and-opportunities/]
[2] Prospects for India–China Relations [https://www.iiss.org/online-analysis/online-analysis/2025/05/prospects-for-indiachina-relations/]
[3] PLI Scheme For EVs In India 2025 [https://diyguru.org/guide/pli-scheme-for-evs-in-india-2025/]
[4] India's PLI Schemes Bring in US$21 Billion in Investment in 2025 [https://www.india-briefing.com/news/indias-pli-schemes-bring-in-us21-billion-in-investment-in-2025-38796.html/]
[5] India Readies Rs 5000 Crore Push for Rare Earth Magnets [https://www.republicworld.com/business/india-readies-rs-5000-crore-push-for-rare-earth-magnets-a-bold-move-to-cut-chinas-grip-exclusive]
[6] Strategic Diversification in India's Energy and Export Sectors [https://www.ainvest.com/news/strategic-diversification-india-energy-export-sectors-navigating-trump-tariffs-global-shifts-2508/]