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Soumya Bhowmick, “Supply, Strategy, and Statecraft: India’s China Policy in an Era of Economic Rebalancing,” ORF Special Report No. 307, Observer Research Foundation, May 2026.
India’s relationship with China is economically consequential, politically sensitive, and strategically constrained. In FY2024–25, India–China merchandise trade was valued at US$127.7 billion, with India importing US$113.5 billion and exporting only US$14.3 billion. The resulting deficit, at around US$99.2 billion, was the highest India has ever recorded with any single country. These figures highlight how deeply Chinese goods, machinery, components, and intermediates remain embedded in India’s industrial system. Electronics, chemicals, machinery, pharmaceuticals, renewable-energy equipment, batteries, and a range of manufacturing inputs continue to move through China-linked supply chains before reaching Indian factories and consumers.[1] China also accounts for roughly 16 percent of India’s total imports in FY 2024-25, making it India’s largest import source.[2] These trends suggest that this relationship should be viewed as both an economic reality and a strategic problem.
The strategic dimension of the India-China relationship became more pronounced after the 2020 border crisis, culminating in the Galwan Valley clash, the first fatal confrontation along the Line of Actual Control in over four decades.[3] India’s challenge, therefore, is not whether to engage China or oppose it, but how to manage interdependence in a security environment that has become more adversarial since 2020. At the same time, India continues to require sustained industrial expansion. It needs competitively priced intermediate goods, capital equipment, and supply-chain linkages that can support export growth and employment. Manufacturing currently accounts for approximately 16-17 percent of India’s Gross Domestic Product (GDP), and the national industrial policy aims to raise this to 25 percent to support employment and industrial expansion.[4] This requires India to engage with supply chains in which Chinese firms and inputs play a central role.
Additionally, India can no longer view economic dependence as merely a commercial matter. Policymakers have become increasingly aware that concentrated supply dependencies can become sources of leverage, disruption, or pressure in a crisis. Recent export controls by China on rare-earth elements, related products, and technologies have reinforced this concern.[5] India’s resulting policy posture, therefore, while seemingly contradictory, reflects a coherent strategy: India keeps economic channels open when useful, but seeks to build guardrails around areas where dependence could constrain policy autonomy and strategic decision-making.
India’s limited stabilisation with China should not be seen as a drift away from the United States (US), but as part of its broader strategy of preserving strategic autonomy while expanding domestic capabilities and external partnerships. The Gulf crisis has made this balancing act more urgent by raising energy, shipping, and insurance risks, giving New Delhi stronger incentives to prevent China-related supply frictions from becoming an additional source of economic stress.
Table 1: The Economic Impact of the Strait of Hormuz Crisis
| Channel of Impact | Economic Implications |
| Shipping Routes | The Strait of Hormuz carries around 20 million barrels per day of oil, equivalent to 25 percent of global seaborne oil trade. Since the escalation, ship movement through the waterway has fallen sharply: average daily ship transits dropped from 141 during 1–27 February 2026 to five by 5 March 2026, a 97-percent decline, indicating how quickly disruptions in the Gulf can affect maritime flows and trade reliability. |
| Energy Supplies | The disruption has direct implications for energy security, especially in Asia. In 2024, 84 percent of crude oil and 83 percent of liquefied natural gas passing through the Strait were destined for Asia. This makes instability in Hormuz especially relevant for Asian importing economies already exposed to external energy shocks. |
| Freight Rates | Shipping costs have risen sharply. Between 27 February and 6 March 2026, the Baltic Clean Tanker Index increased by 72 percent, while the Baltic Dirty Tanker Index rose by 54 percent. Freight costs for shipping oil as reaching “historic highs,” underscoring the inflationary effect of Gulf instability on trade costs. |
| Insurance Costs | War-risk insurance premiums have risen steeply. For a vessel valued at US$100 million, UNCTAD estimates a typical pre-crisis war-risk premium of 0.25 percent, or US$250,000 per voyage. If insurance costs double, this rises to US$500,000, and if they quadruple, to US$1,000,000 per voyage. Such increases directly raise the cost of maritime trade through the region. |
| Broader Economic Spillovers | The Strait also matters for non-energy trade. Around one-third of global seaborne fertiliser trade passes through it, and 16 million tonnes of fertilisers were shipped by sea from the Persian Gulf region in 2024. Higher energy, fertiliser and transport costs—including freight rates, bunker fuel prices, and insurance premiums—can intensify food-price and cost-of-living pressures. |
Source: UNCTAD[6]
For India, therefore, the issue is no longer whether interdependence with China exists—but whether that interdependence can be reshaped so that it does not translate into vulnerability at moments of strategic strain. Accordingly, India’s China policy today is best understood as strategic risk management. It seeks neither unqualified normalisation nor complete economic rupture. Instead, it seeks to preserve room for manoeuvre through capability-building at home, diversification abroad, and a more selective and calibrated approach to dependence in sectors where the costs of coercion would be particularly high.
Operationally, India’s policy is framed by a dual imperative: sustaining growth through continued access to regional production networks; and preventing concentrated economic exposure from turning into strategic vulnerability. India has not embraced outright decoupling, nor does it assume that commerce can remain insulated from geopolitical rivalry. Instead, it is moving towards a framework of managed interdependence: maintaining economic engagement that supports development, while diversifying partnerships and exercising greater scrutiny where strategic dependencies emerge.[7]
This approach reflects the structure of contemporary Asian production networks. China remains deeply embedded in the region as an upstream supplier and processing hub, even where downstream manufacturing and final assembly have shifted elsewhere. According to the International Monetary Fund, nearly 60 percent of intermediate goods exports in Asia remain within the region, reflecting the dense intra-regional production networks that structure Asian trade.[8] As a result, diversification in Asia does not automatically mean replacing China. In many cases, it means moving certain stages of value chains while upstream Chinese inputs remain intact. China’s trade with ASEAN reached roughly US$771 billion in 2024, underscoring the depth of production linkages between China and Southeast Asian manufacturing hubs.[9]
Figure 1: Intra-Regional Goods Exports (% of Goods Exports, 2023)
Source: International Monetary Fund[10]
At the same time, India’s strategic lens has hardened. Since 2020, New Delhi has become more attuned to the risks of asymmetric interdependence, especially in areas where a narrow set of suppliers or technologies could become chokepoints. This is visible in the tightening of India’s FDI regime in 2020, which placed investments from countries sharing a land border with India under the government approval route and extended scrutiny to beneficial ownership.[11] The policy was articulated in the language of curbing opportunistic takeovers, but its longer-term significance extends further: it marked the formal entry of strategic risk into India’s economic policy calculus. China would remain a trading partner, but Chinese capital and participation in sensitive sectors would now be screened through a more strategic, security-oriented lens.[12] Recent policy instruments, however, marked a calibrated relaxation: in March 2026, India allowed certain investor entities with non-controlling beneficial ownership from land-border countries of up to 10 percent to invest through the automatic route, while retaining oversight over acquisitions involving control or strategic sensitivity.[13]
India’s response, however, emphasises capability-building and diversification, and not a dramatic separation from China. Industrial policy, especially through the Production Linked Incentive (PLI) framework, has sought to deepen domestic supplier ecosystems, attract investment, and increase local value addition over time. The PLI Scheme spans 14 sectors with a total outlay of roughly INR 1.97 lakh crore (~US$23-24 billion).[14] This is paired with wider attempts to diversify and cultivate alternative sources of technology, capital, and components through partnerships with multiple countries rather than a single strategic bloc. India’s preference, in other words, is to preserve strategic optionality rather than pursue economic autarky. The objective is to reduce dependence to levels that remain manageable.[15]
A further complication is Pakistan. For India, the China question is never purely economic as China’s strategic relationship with Pakistan remains a structural variable in India’s security calculations. New Delhi does not expect that Beijing will alter its Pakistan policy to suit Indian preferences, though it does recognise that the China–Pakistan relationship sharpens the strategic implications of economic dependence. Tactical stabilisation with Beijing may still be possible. Yet the prospect of a two-front strategic challenge ensures that India will remain wary of dependencies that could become leverage in moments of crisis. This, too, is why India’s approach is better described as a strategy of selective de-risking rather than reconciliation with China.[16]
India’s bilateral trade deficit with China is valued at US$99 billion in FY2024–25 and reflecting strong imports of electronics, machinery, and other manufacturing inputs.[17] To be sure, a bilateral trade deficit is not, by itself, proof of exploitation or unfairness. In a world of fragmented production, goods often cross borders several times before becoming final products. Components, sub-assemblies, processed materials, and capital goods move through multiple jurisdictions, which means bilateral balances can often exaggerate the underlying value-added relationship.[18]
At the macroeconomic level, what matters more is the broader external position, particularly the current account and the economy’s capacity to finance imports sustainably.[19] India’s own experience makes this point clear. Even with a large bilateral deficit with China, India’s overall external position has mostly remained manageable. For instance, India’s current account deficit in FY2024–25 was roughly 0.6 percent of GDP, even as its total goods imports exceeded US$721 billion.[20] India’s foreign exchange reserves were about US$701 billion in January 2026, providing import cover for about 11 months. Such reserve levels cover more than 90 percent of India’s external debt, strengthening its ability to handle external shocks.[21]
At the same time, macroeconomic sustainability does not mean the bilateral deficit is strategically irrelevant. Its significance emerges when it reveals deeper structural vulnerabilities in the economy. Three issues in particular shape how policymakers interpret the imbalance. The first is scale and persistence. India’s trade deficit with China is not a one-off fluctuation but the result of a persistent pattern in which imports have surged while exports to China remain subdued. That persistence suggests that the imbalance is rooted not simply in cyclical trade conditions, but in deeper capability gaps. India is importing a wide range of goods that it cannot yet produce efficiently at home or source easily elsewhere. These imports further feed India’s own export baskets. That is why the deficit is being read as a symptom of structural dependence.
Figure 2: India’s Exports to China (FY2015-FY2025, in US$ billion)
Source: The Economic Times[22]
The second issue is composition. Deficits matter more when the import basket is dominated by intermediates and capital goods rather than finished consumer products alone. This is precisely the case with India’s imports from China. Electronics components, industrial machinery, battery inputs, chemicals, solar cells, and manufacturing equipment are part of Indian production chains.
India’s imports from China are heavily concentrated in upstream industrial sectors. Electrical machinery and electronics alone account for 36 percent of imports, followed by machinery and mechanical appliances at 21.7 percent. Organic chemicals and plastics together account for another significant share. Their interruption would not merely affect consumption; it would disrupt production itself. That makes the deficit qualitatively different from a politically noisy but economically shallow gap. Here, the imbalance stems from the difficulty of quickly substituting these inputs. It signals how hard it would be to keep key sectors running under stress.[23]
Figure 3: India’s Imports from China by Product Category (2024)
Source: Observatory of Economic Complexity[24]
The third issue is concentration at chokepoints. India is not primarily worried about imports from China in the abstract. It is concerned about product categories where a narrow supplier base could lead to cascading disruption across multiple sectors. Once imports are concentrated in a few critical nodes, the trade deficit becomes strategically significant as a rough indicator of where the country’s industrial system is most exposed. When a large share of imports is concentrated in a handful of upstream industrial inputs, supply disruptions can propagate across multiple downstream industries, turning trade dependence into a potential supply-chain chokepoint. As a result, India’s debate has gradually shifted from the morality of deficits to the political economy of vulnerability. The more relevant question is not whether a deficit exists, but whether it reflects manageable interdependence or dangerous concentration.
Seen in this light, an attempt to eliminate the trade deficit with China overnight would be both unrealistic and economically costly. Instead, the policy objective is to compress strategic dependence over time by widening sourcing options, deepening domestic value-addition, and identifying the sectors where substitution is both necessary and feasible. This is why New Delhi’s policy response has focused less on headline rhetoric and more on a layered toolkit that mixes capability-building, compliance-based regulation, and selective restrictions in strategic sectors.
India’s response to China-linked dependence is layered, with the measures not being framed in explicitly geopolitical language but presented as industrial policy, quality regulation, or national standards. This strategy of “selective de-risking” involves governments seeking to mitigate vulnerabilities in sensitive sectors without abandoning broader economic engagement.[25] Taken together, these measures represent a systematic effort to reduce concentrated vulnerability while preserving sufficient openness for growth.
A pillar of India’s strategy is capability-building. India’s PLI framework reflects this strategy, targeting key sectors such as electronics, pharmaceuticals, solar PV modules, and semiconductors.[26] Since its launch in 2020, the PLI framework has helped attract more than US$17 billion in manufacturing investment and generate production worth over INR 11 trillion across participating sectors.[27] In pharmaceuticals, the push for domestic active pharmaceutical ingredient (API) manufacturing has led to the creation of new domestic production facilities for critical drug ingredients, part of a broader effort to reduce the industry’s reliance on Chinese suppliers, which currently account for roughly 60–70 percent of India’s API imports.[28]
The logic is straightforward: if India can produce more of what it currently imports, or at least broaden its supplier base, then dependence on any one country becomes less politically dangerous. Yet the transition is not linear. In the early stages of industrial upgrading, imports of components can actually rise even as domestic assembly expands. This is not a policy failure, but a transitional feature of climbing value chains. India’s challenge is to move beyond assembly into ecosystem depth, which takes time, scale, and sustained investment.
The second layer in India’s response is rules enforcement. India has increasingly relied on standards, registration requirements, and trade-remedy instruments to shape the composition of imports. In electronics and related sectors, the Bureau of Indian Standards and its compulsory registration framework have become important filters for market access. Quality-control orders and standards requirements are often justified in technical or consumer-protection language, but their practical effects are broader. India is currently implementing stringent product-safety standards for Chinese household appliances and electronics imports. This is in response to the discovery of substandard products in the marketplace, but it serves a larger purpose: encouraging domestic manufacturing of these consumer goods and the development of domestic supply chains.[29] They help New Delhi increase traceability, improve compliance, and make market access more conditional.
Trade remedies perform a similar function. India has been one of the most active users of anti-dumping measures globally, with a large share directed at imports from China in sectors ranging from chemicals to steel and fibre products.[30] Anti-dumping and safeguard actions do not eliminate dependence, but they can slow sudden import surges, protect some domestic capacity, and signal that access to India’s market will not be entirely decoupled from strategic and industrial considerations.
The third layer is strategic guardrails. These are most visible in telecommunications, digital platforms, critical infrastructure, and data-rich systems. India’s trusted telecoms architecture formalised the principle that telecom networks must rely on “trusted” products and sources in categories where network integrity is linked to national security.[31] The same reasoning informed the 2020 ban on 59 mobile applications linked to Chinese firms, including TikTok and WeChat, under Section 69A of the Information Technology Act.[32] In power infrastructure, too, India moved in 2020 to curb imports of certain Chinese equipment amid heightened tensions. The government introduced rules requiring prior approval for the import of power supply equipment from countries sharing a land border with India, citing cybersecurity and grid security concerns.[33] Here, the issue is not only price. It is auditability, continuity, and the ability to understand who controls vital systems in moments of stress. In such sectors, India is prepared to sacrifice some short-term efficiency for greater long-term control.
At the same time, the toolkit is becoming more flexible. India is willing to ease some restrictions where capacity gaps at home are holding back growth and project implementation. Exemptions for some Chinese equipment in power and coal, faster visas for Chinese professionals, and discussions on easing selected procurement or trade frictions suggest that New Delhi is calibrating rather than ideologising its China policy.[34] This flexibility does not negate the larger de-risking logic. It confirms it. India’s state is not trying to seal the economy off from China. It is trying to decide where dependence is tolerable, politically manageable, and too costly to sustain. That is why its measures are differentiated rather than uniform. High-trust sectors receive tighter guardrails. Industrial sectors with persistent capacity constraints are treated more pragmatically. The result may be tangled, but it reflects the realities of transition.
India’s post-2020 recalibration has produced results, albeit uneven across sectors. The most visible changes have occurred where the state could act quickly and where administrative enforceability was high. The digital domain is one example. The blocking of mobile applications and the broader tightening of controls on Chinese digital platforms changed parts of India’s consumer internet landscape almost immediately.[35] In these cases, the objective was clear, and the policy lever was relatively direct. Exposure could be reduced at the node level even if the larger trade structure remained intact.
In investment, procurement, and infrastructure, the change has been more procedural than dramatic. The post-2020 shift to a government-approval route for FDI from land-border–sharing countries is best understood as a screening instrument aimed at control, beneficial ownership, and risk concentration, rather than a comprehensive ban. India’s own parliamentary record also indicates that China’s cumulative share of total FDI equity inflows into India has historically been small in aggregate terms, implying that the policy’s main impact has been to raise the scrutiny threshold in sensitive cases rather than to switch off a dominant funding channel.[36] However, the overall economic relationship has not broken down. That is because the macro structure of trade still reflects deeper industrial realities. Many sectors in India continue to depend on Chinese inputs, equipment, or technicians for installation, maintenance, and scaling. This is precisely why, in late 2025, India eased business visa procedures for Chinese professionals after years of severe restrictions.[37] The move was not a sign of strategic trust. It was an acknowledgement that industrial policy and factory expansion were being slowed by the shortage of technical personnel linked to Chinese machinery and supply chains.
Manufacturing shows the same mixed pattern. Industrial policy has produced measurable gains, especially in the electronics sector. Official data shows that mobile phone production has risen sharply, exports have climbed, and India has become a net exporter of mobile phones rather than a net importer.[38] By early 2026, official data showed that mobile phone production had more than doubled since FY2019–20, exports had increased roughly eightfold, and India had become a net exporter in the category. Mobile phone imports now constitute a negligible share of domestic demand—0.02 percent, down from 75 percent 10 years ago.[39] This is an important shift, demonstrating that targeted industrial policy can alter the downstream dependence profile. It does not mean, however, that upstream vulnerability has disappeared. Many components, sub-assemblies, and machinery inputs remain imported, and often still come through Chinese or China-linked networks. India has become stronger in assembly and some manufacturing stages, but not yet uniformly stronger across the entire chain.
Table 2: PLI Schemes: Headline Outlay and Reported Outcomes (as of December 2023)
| Indicator | Amount (in INR billion) |
| PLI schemes total announced outlay (14 sectors) | 1,970 |
| Actual investment realised | 1,070 |
| Production/sales generated | 8,700 |
| Exports generated | 3,400 |
| Incentives disbursed (8 sectors) | 44.15 |
Source: Government of India, Ministry of Commerce & Industry[40]
The trade-offs are nevertheless real. Guardrails and standards can narrow vendor pools and raise transaction costs. Trusted-source rules can delay procurement. Restrictions on technicians and capital can slow installation and production. Domestic manufacturing incentives can expand assembly but may initially deepen dependence on imported parts. This is why India’s China policy since 2020 should not be judged in binary terms. It has neither solved dependence nor failed outright. It has reduced exposure in some strategic nodes, created new capacity in selected sectors, and made the state more alert to concentrated risk. At the same time, it has revealed the high transitional costs of re-wiring an economy that still relies heavily on upstream Chinese inputs.
The greatest danger for India is not an across-the-board rupture in bilateral trade. Such a rupture would be costly for both sides. The more plausible risk lies in narrower forms of coercion: licensing delays, export-documentation hurdles, restrictions on certain strategic materials, or administrative throttling at critical chokepoints. In contemporary supply chains, coercion rarely appears as a formal embargo. Instead, leverage is exercised through selective frictions applied at specific nodes of production networks. It often appears as selective friction in products that are difficult to substitute quickly. Since modern manufacturing depends on specialised intermediate inputs, upstream disruptions can cascade into significant downstream losses.
Over the past few years, China has increasingly used export controls on select minerals and processed materials as a policy instrument. Beginning in 2023, Beijing introduced export licensing requirements for critical inputs used in semiconductors, batteries, and advanced electronics. These include gallium and germanium—metals essential for compound semiconductors and high-frequency communication technologies. Subsequent measures tightened controls on graphite—a key component of lithium-ion batteries—and expanded scrutiny of materials such as antimony and rare-earth processing technologies. China’s structural dominance amplifies this leverage.[41] The country produces 60–70 percent of global rare-earth mining and accounts for nearly 85–90 percent of refining.[42]
For India, the implication is that even when macroeconomic buffers are stable, disruption risk concentrates where a small set of upstream inputs cascade into substantial downstream production losses. The challenge is amplified because the country’s industrial ambitions in electric mobility, renewable energy, semiconductors, electronics, and strategic manufacturing depend on mineral and processing chains where China remains dominant.
Table 3: World Mine Production and Reserves of Rare-Earths (Rare-Earth-Oxide Equivalent), 2023–2024 (Metric Tons)
| Country | Mine Production 2023 | Mine Production 2024 (e) | Reserves |
| United States | 41,600 | 45,000 | 1,900,000 |
| Australia | 16,000 | 13,000 | 5,700,000 |
| Brazil | 140 | 20 | 21,000,000 |
| Burma | 43,000 | 31,000 | NA |
| Canada | — | — | 830,000 |
| China | 255,000 | 270,000 | 44,000,000 |
| Greenland | — | — | 1,500,000 |
| India | 2,900 | 2,900 | 6,900,000 |
| Madagascar | 2,100 | 2,000 | NA |
| Malaysia | 310 | 130 | NA |
| Nigeria | 7,200 | 13,000 | NA |
| Russia | 2,500 | 2,500 | 3,800,000 |
| South Africa | — | — | 860,000 |
| Tanzania | — | — | 890,000 |
| Thailand | 3,600 | 13,000 | 4,500 |
| Vietnam | 300 | 300 | 3,500,000 |
| Other | 1,440 | 1,100 | NA |
| World total (rounded) | 376,000 | 390,000 | >90,000,000 |
(Notes: “e” = estimated; “—” = zero; “NA” = not available.)
Source: U.S. Geological Survey[43]
This problem has become still more immediate in early 2026. China’s January–February rare-earth exports rose year-on-year, but Beijing has simultaneously tightened the administrative and policy oversight around rare-earth and critical-mineral exports.[44] The message is clear: supply may continue, but under strategic state control rather than market neutrality.
India’s answer has been to shift from an abstract language of self-reliance to a more programmatic resilience strategy. The National Critical Mineral Mission, approved in January 2025, is intended to cover the entire value chain—from exploration and mining to processing, recovery, and recycling.[45] It will depend on whether India can build leverage in the material foundations of the new industry. That includes minerals, refining, processing, and downstream applications.
The same shift is visible in permanent magnets. India approved a US$73-billion programme to develop permanent-magnet rare-earth manufacturing in late 2025. By February 2026, the government publicly announced plans to begin domestic production of rare-earth permanent magnets before the end of the year, in partnership with private industry. This is important as permanent magnets are central to modern industrial technologies. Neodymium-based magnets are used in electric vehicles, wind turbines, robotics, aerospace systems, and defence equipment, among others.[46]
India’s resilience strategy also has an external dimension. New Delhi has sought to diversify supply-chain risk through wider partnerships with countries such as Australia and through multilateral initiatives such as the Quad, which has prioritised cooperation on critical minerals and resilient technology supply chains. The goal is not to replicate China’s scale overnight but to reduce the probability that a narrow set of materials or inputs can disrupt broader industrial sectors. Here, strategic autonomy takes on a practical meaning—the ability to ensure that production systems continue to function even if a supplier attempts to apply pressure.
The limited thaw in India–China relations after late 2024 is best understood not as reconciliation, but as tactical stabilisation. The key inflection point was the October 2024 disengagement, which covered patrol arrangements in the Depsang and Demchok sectors of Ladakh.[47] Subsequent diplomatic engagement and leader-level meetings helped stabilise the border situation, though strategic distrust persists. By then, the relationship had already been managed through multiple diplomatic and military channels, including meetings of the Working Mechanism for Consultation and Coordination on India-China Border Affairs (WMCC) and rounds of Senior Highest Military Commanders’ talks. These were not signs of restored trust. They were mechanisms for crisis management, helping prevent the border situation from remaining permanently combustible.[48]
Subsequent high-level engagements followed the same logic. Prime Minister Narendra Modi and President Xi Jinping met on the margins of the BRICS summit in Kazan in October 2024. Senior-level contacts followed thereafter. Statements from the Indian side emphasised a clear sequencing: stabilisation of the border situation would come first, while progress in other areas of the relationship would follow cautiously and incrementally.[49] Limited commercial steps such as the resumption of direct flights reflect tactical stabilisation and lower transactional frictions, but they do not signal a return to pre-2020 trust or normalisation.
The recent thaw has acquired a limited economic dimension, visible in easier business visas, selective relaxation of some restrictions, and pragmatic exemptions in infrastructure-linked sectors, even as it remains cautious and reversible. External pressures, including trade uncertainty, tariff shocks, technology restrictions, and the Gulf crisis, have reinforced India’s interest in preventing the China relationship from becoming another source of disruption. Yet this should not be mistaken for reconciliation: New Delhi is trying to make de-risking compatible with stability, reducing the risk of renewed crisis while preserving strategic caution and continuing to build domestic capability and external options.
India’s China policy is now best understood as an exercise in strategic risk management. It neither assumes that interdependence can be wished away nor that commercial ties will soften strategic competition on their own. Instead, it rests on a proposition that resilience depends on the availability of options. The wider the range of suppliers, partnerships, domestic capabilities, and fall-back mechanisms, the lower the risk that any single external relationship can become coercive leverage. India’s policy response is therefore aimed at moving from passive exposure to managed exposure, and from dependence without safeguards to interdependence with guardrails.
This is also why India is unlikely to move towards either a complete rupture with China or a naïve reset. It will continue to trade where trade remains necessary. It will prevent dependence from becoming overly concentrated. It will diversify where alternatives are available. And it will calibrate where abrupt restrictions start to damage its own industrial ambitions. This is not a contradiction but the operational expression of strategic autonomy under conditions of contested interdependence, an attempt to preserve agency in a geopolitical landscape where economics and security increasingly overlap.
The current moment shows that India’s challenge is no longer only China. It is the possibility of simultaneous shocks across theatres: energy and shipping stress from the Gulf, mineral and input dependence on China, and volatility in the wider global trade system. The real test of policy is whether India can build sufficient redundancy across energy, logistics, technology, manufacturing, and critical minerals to maintain both growth and strategic choice.
Soumya Bhowmick is Fellow, Centre for New Economic Diplomacy (CNED), ORF.
Note: This report is an expanded version of the expert witness testimony provided by the author to the U.S.-China Economic and Security Review Commission (USCC). The USCC is a U.S. congressional commission mandated to monitor, investigate, and report to Congress on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China. This work builds upon the testimony presented during the public hearing on “India, China, and the Balance of Power in the Indo-Pacific” held on February 17, 2026. The official hearing record is available at: https://www.uscc.gov/hearings/india-china-and-balance-power-indo-pacific
All views expressed in this publication are solely those of the author, and do not represent the Observer Research Foundation, either in its entirety or its officials and personnel.
[1] Nisha Taneja et al., “Calibrating India’s Economic Engagement Strategy with China Amidst the Changing Geopolitical Landscape,” Policy Brief No. 45, Indian Council for Research on International Economic Relations, August 2025, https://icrier.org/pdf/Calibrating_India_s_Economic.pdf.
[2] Nisha Taneja and Vasudha Upreti, “Rebalancing Trade Ties: India’s Path to Reduced Chinese Import Dependence,” The Economic Times, August 1, 2025, https://economictimes.indiatimes.com/small-biz/trade/exports/insights/rebalancing-trade-ties-indias-path-to-reduced-chinese-import-dependence/articleshow/123035943.cms.
[3] Ministry of External Affairs, Government of India, “Statement on Galwan Valley Incident,” June 16, 2020, https://www.mea.gov.in/press-releases.htm?dtl/32758/Statement_on_Galwan_Valley_incident.
[4] India Brand Equity Foundation (IBEF), “Manufacturing Sector in India: Key Players, Growth & Opportunities,” IBEF, https://www.ibef.org/industry/manufacturing-sector-india#:~:text=Introduction,GDP%20in%20the%20coming%20years.
[5]Tae-Yoon Kim et al., “With New Export Controls on Critical Minerals, Supply Concentration Risks Become Reality,” International Energy Agency, October 23, 2025, https://www.iea.org/commentaries/with-new-export-controls-on-critical-minerals-supply-concentration-risks-become-reality.
[6] United Nations Conference on Trade and Development, Strait of Hormuz Disruptions: Implications for Global Trade and Development (Geneva: UNCTAD, March 10, 2026), https://unctad.org/system/files/official-document/osgttinf2026d1_en.pdf.
[7] “India Steps into 2026 with a Brand-New Global Playbook,” The Economic Times, January 1, 2026, https://economictimes.indiatimes.com/news/economy/policy/india-steps-into-2026-with-a-brand-new-global-playbook/articleshow/126284569.cms?from=mdr.
[8] International Monetary Fund, “Reshaping Value Chains: The Case for Deeper Asia-Pacific Integration,” in Regional Economic Outlook: Asia and Pacific (Washington, DC: International Monetary Fund, October 2025), https://www.elibrary.imf.org/display/book/9798229025881/CH002.xml.
[9] “China and ASEAN Sign Upgraded Free Trade Pact,” Reuters, October 28, 2025, https://www.reuters.com/world/asia-pacific/china-asean-sign-upgraded-free-trade-pact-2025-10-28/.
[10] International Monetary Fund, Regional Economic Outlook: Asia and Pacific—Navigating Trade Headwinds and Rebalancing Growth (Washington, DC: IMF, 2025), chap. 2, fig. 2.10, 28,https://www.imf.org/-/media/files/publications/reo/apd/2025/october/english/ch2.pdf.
[11] Ministry of Commerce and Industry, Government of India, Press Note 3 (2020 Series): Review of FDI policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the COVID-19 pandemic (New Delhi, April 17, 2020), https://www.dpiit.gov.in/static/uploads/2025/06/5ba02aee722ce9b81f474ec6b5e4d700.pdf.
[12] Press Information Bureau, Government of India, “Restrictions on Public Procurement from Land Border Sharing Countries,” March 23, 2022, https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1808806®=3&lang=2.
[13] Press Information Bureau, Government of India. “Cabinet Approves Changes in Guidelines on Investments from Countries Sharing Land Border with India,” March 10, 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2237806&lang=1®=3.
[14] Press Information Bureau, Government of India, “PLI Scheme: Powering India’s Industrial Renaissance,” August 24, 2025, https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=155082&ModuleId=3®=3&lang=2.
[15] “India’s Manufacturing Incentives Progress Amid Efforts to Cut China Imports,” Reuters, September 25, 2024, https://www.reuters.com/world/india/indias-manufacturing-incentives-progress-amid-efforts-cut-china-imports-2024-09-25/.
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Dr. Soumya Bhowmick is a Fellow at the Centre for New Economic Diplomacy (CNED) at the Observer Research Foundation (ORF). He completed industry- endorsed Ph.D. ...
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