India’s Strategic Opening to Chinese Capital: A New Era for FDI and Sectoral Growth

India’s foreign direct investment (FDI) landscape is undergoing a transformative shift as the country recalibrates its approach to Chinese capital. Driven by a need to address a widening trade deficit and integrate into global supply chains, India has proposed easing restrictions on Chinese investments in non-sensitive sectors such as renewable energy, manufacturing, and consumer goods. This strategic pivot, while cautious, signals a pragmatic balancing act between economic pragmatism and national security concerns.

Renewable Energy: A Solar-Powered Partnership

India’s renewable energy sector is a prime beneficiary of this policy shift. The National Green Hydrogen Mission (NGHM), backed by a ₹19,744 crore ($2.4 billion) investment, aims to position India as a global green hydrogen hub by 2030 [1]. Chinese firms, already dominant in solar cell manufacturing, are poised to capitalize on India’s ambitious 500 GW non-fossil fuel target. Despite a 25% import duty on solar cells, Chinese exports to India surged by 73% in 2025, with India accounting for 52% of the global increase in Chinese solar cell exports [3]. The Production-Linked Incentive (PLI) scheme for solar manufacturing further sweetens the deal, offering subsidies to firms that localize production [4].

However, India’s reliance on Chinese solar equipment—70% of its solar power capacity is currently sourced from China—has prompted a push for domestic manufacturing [5]. This duality creates opportunities for Chinese firms to collaborate on joint ventures, provided they align with India’s localization goals.

Manufacturing: From Electronics to Green Tech

India’s manufacturing sector, contributing 13-14% of GDP in 2025, is another focal point. The PLI scheme, expanded to 14 sectors including semiconductors and pharmaceuticals, has attracted investments like TSMC’s $10 billion chip plant in Tamil Nadu [2]. Chinese firms, particularly in electronics, are eyeing India’s $2.65 billion Electronics Component Manufacturing Scheme, which incentivizes domestic value addition [6].

The telecom sector, a sensitive area, remains restricted, but non-core infrastructure projects are opening up. For instance, Guofu Hydrogen’s delivery of 1MW electrolysis equipment to Ahmedabad underscores the potential for Chinese-Indian collaboration in green hydrogen production [7].

Consumer Goods: A Growing Appetite

India’s consumer goods sector, driven by a burgeoning middle class and rural demand, is also attracting Chinese capital. The services sector alone accounted for 19% of total FDI inflows in FY2024-25, with projections of 56% GDP contribution by 2047 [8]. Chinese investments in household appliances, e-commerce, and fast-moving consumer goods (FMCG) are rising, supported by India’s relaxed FDI norms in retail and logistics.

The 24% equity cap proposal for Chinese firms in non-sensitive sectors, recommended by NITI Aayog, could further accelerate this trend [9]. However, India’s 75% import dependency on Chinese lithium-ion batteries and pharmaceutical ingredients highlights the need for strategic partnerships [10].

Challenges and Geopolitical Nuances

While the policy shift is promising, challenges persist. India’s trade deficit with China hit $113.45 billion in FY2025, and geopolitical tensions—exacerbated by border disputes and China’s alliances with Pakistan—remain a wildcard [11]. The government’s “small yard, high fence” strategy, which opens non-critical sectors while safeguarding sensitive infrastructure, reflects this delicate balance [12].

Conclusion: A Calculated Gambit

India’s strategic opening to Chinese capital is a calculated gambit to boost FDI, reduce trade imbalances, and accelerate industrialization. While the focus on non-sensitive sectors mitigates security risks, the success of this policy hinges on India’s ability to localize supply chains and leverage Chinese expertise without compromising strategic autonomy. For investors, the renewable energy, manufacturing, and consumer goods sectors present a compelling case, underpinned by policy incentives and India’s demographic and economic momentum.

Source:
[1] India's Green Hydrogen Roadmap: 2025 to 2030 [https://sortconsultancy.com/blogs/india-green-hydrogen-roadmap-2025-2030-policies-progress-possibilities-sortconsultancy]
[2] India's Industrial Policies 2025 [https://www.cfr.org/article/indias-industrial-policies-rejecting-old-status-quo-and-creating-new]
[3] China solar cell exports grow 73% in 2025 - Ember-energy.org [https://ember-energy.org/latest-insights/china-solar-cell-exports-grow-73-in-2025/]
[4] India's Renewable Energy Growth: Solar Power & More [https://www.ibef.org/industry/renewable-energy]
[5] How Vulnerable Is India to Chinese Economic Coercion? [https://www.usip.org/publications/2025/06/how-vulnerable-india-chinese-economic-coercion]
[6] India mulls support for Chinese investments, subject to conditions [https://www.lightreading.com/regulatory-politics/india-mulls-support-for-chinese-investments-subject-to-conditions]
[7] [SMM Analysis] China's Breakthrough Amid India's Green ... [https://www.metal.com/en/newscontent/103491794]
[8] India's Service Sector Outlook for FY 2025-26 [https://www.china-briefing.com/china-outbound-news/indias-service-sector-outlook-for-fy-2025-26]
[9] India's top think tank recommends easing investment rules for Chinese firms [https://www.reuters.com/world/china/indias-top-think-tank-recommends-easing-investment-rules-chinese-firms-sources-2025-07-18/]
[10] China-India Economic Ties: Trade, Investment, and Opportunities [https://www.china-briefing.com/news/china-india-economic-ties-trade-investment-and-opportunities/]
[11] Strategic Geopolitical Realignments: The India-China rapprochement and its impact on regional trade and investment opportunities [https://www.ainvest.com/news/strategic-geopolitical-realignments-india-china-rapprochement-impact-regional-trade-investment-opportunities-2508/]
[12] India's Foreign Direct Investment Tracker 2025 [https://www.china-briefing.com/china-outbound-news/india-fdi-tracker-2025]