Government Prioritizes High-Tech Manufacturing While Restricting Investments in Sensitive Sectors
The Indian government is selectively approving Chinese technology joint ventures (JVs), particularly in electronics manufacturing and automobiles, while continuing to scrutinize investments in financial services, private equity, and pharmaceuticals.
This selective approach reflects India’s strategic economic and security considerations, as the country seeks to strengthen its manufacturing sector through collaborations with Chinese firms that hold global leadership in key technologies.
Fast-Tracked Approvals in Electronics and Automobiles
Over the past year, India has approved several Chinese joint ventures in electronics and automobile manufacturing, signaling a calibrated approach towards foreign direct investment (FDI) from China.
- Micromax’s Bhagwati JV with China’s Huaqin and Dixon’s stake purchase in Ismartu India, a subsidiary of China’s Transsion Technology, received government approval.
- Dixon Technologies is awaiting approval for its agreements with China’s HKC (for display modules) and Vivo (for smartphone manufacturing).
- The JSW Group and China’s SAIC Motor JV to manufacture electric vehicles (EVs) under the MG brand was also approved.
According to government sources, these approvals align with India’s strategic goal of positioning itself as a global electronics and EV manufacturing hub, reducing reliance on imports, and integrating into global supply chains.
China +1 Strategy: India’s Push for Technology Transfer
India’s approval of Chinese technology investments aligns with its “China +1” strategy, which aims to reduce dependence on China while leveraging its expertise to build India’s own high-tech manufacturing ecosystem.
- China dominates global electronics manufacturing, making its technology essential for India’s ambitions in the sector.
- JVs with Chinese firms help Indian companies gain access to advanced technology and manufacturing know-how, much like how China itself evolved into a global manufacturing leader.
- The Indian government is closely monitoring these JVs to ensure technology transfer while maintaining safeguards against excessive Chinese control over strategic industries.
Press Note 3: Why Certain Chinese Investments Are Still Facing Delays
Despite the approvals in electronics and automobiles, many Chinese investments in other sectors continue to face hurdles.
- Out of 526 FDI applications from Chinese investors in 2024, 124 were approved, 201 were rejected, and 200 remain pending.
- Financial services, fintech, and pharmaceuticals are among the sectors facing the longest approval times.
- Investments in digital lending, private equity, and startups with Chinese ties are under greater scrutiny due to concerns over data security, systemic financial risks, and geopolitical tensions.
Following the India-China border clashes in 2020, the government introduced Press Note 3, making it mandatory for all Chinese investments to receive security clearance. This rule remains in force, and sectors considered sensitive continue to see extended approval timelines or outright rejections.
Restricting Chinese Control in Financial Services
One of the biggest red flags for the government has been Chinese investments in financial services, particularly in digital lending, fintech, and private equity.
- Government sources confirm that Chinese firms will not be allowed to invest in India’s financial sector, citing concerns over data security and systemic risks.
- Investigations into Chinese-backed loan apps have raised concerns about predatory lending practices and data breaches.
- As a result, Indian startups are increasingly looking for Western investors, as obtaining regulatory clearances for Chinese capital has become difficult.
The Future of Chinese Investments in India: What Lies Ahead?
The Economic Survey for FY24 suggested that India should consider easing restrictions on Chinese FDI, especially in export-driven sectors where China’s expertise could help boost India’s global trade participation. However, the government has yet to take formal steps toward relaxing Press Note 3 restrictions.
Despite ongoing geopolitical tensions, India’s selective approval of Chinese investments indicates a pragmatic shift—allowing technology partnerships while restricting economic control in critical sectors.
- Manufacturing & Technology Approvals Will Continue: India is expected to approve more JVs in semiconductors, advanced electronics, and EV technology.
- Financial Services and Data-Sensitive Sectors Will Remain Restricted: Chinese influence in fintech, digital banking, and private equity will remain blocked due to security concerns.
- Indian Startups Will Seek Alternate Capital Sources: Venture capital firms from the US, Europe, and the Middle East are likely to fill the gap left by Chinese investors.
A Fine Balance Between Growth and National Security
India’s calibrated approach to Chinese investments reflects its long-term strategy—leveraging foreign technology to boost domestic manufacturing while maintaining control over sensitive sectors.
While JVs in electronics and EVs help Indian companies develop cutting-edge capabilities, the government is ensuring that critical economic sectors remain protected from undue Chinese influence.
As India navigates its China +1 strategy, its ability to secure technology partnerships while safeguarding national interests will determine its position in the global economic landscape.
