India and China are signaling a reset in their strained relationship, and the move could have far-reaching implications for Indian industries. From fertilisers and rare earth minerals to electronics manufacturing and foreign direct investment (FDI), India Inc. stands to gain as the world’s two most populous nations look to normalize ties.

The backdrop is challenging: the United States has slapped 50% tariffs on Indian goods, further increasing the urgency for India to diversify trade channels. Prime Minister Narendra Modi’s meeting with Chinese President Xi Jinping at the Shanghai Cooperation Organisation (SCO) Summit in Tianjin highlights India’s push to rebuild economic cooperation with Beijing.

Fertiliser Relief is Temporary - Farmers Brace for Another Price Spike

India’s most pressing concern is fertiliser imports, where the country is 95% dependent on Chinese supplies. Beijing recently lifted export restrictions on Di-Ammonium Phosphate (DAP), rare earth magnets, and tunnel-boring machines after diplomatic interventions by External Affairs Minister S. Jaishankar.

While this has temporarily eased the pressure, the relief is short-lived. Beijing plans to reinstate fertiliser export curbs in October, affecting global supply. Rajiv Chakraborty, President of the Soluble Fertilizer Industry Association, warned that shipments will face tight inspections and delays, potentially driving prices higher during the peak demand season for cash crops like grapes and bananas.

Earlier curbs had already triggered a 40% price surge in fertilisers and disrupted Rabi season supplies. Delays in tunnel-boring machines have also slowed infrastructure projects, while rare earth restrictions alarmed India’s auto and electronics sectors.

Rare Earth Restrictions Threaten India’s High-Tech Ambitions

China’s dominance in rare earth minerals remains a bottleneck for Indian manufacturing. Restrictions on rare earth magnets critical for electric vehicle motors, batteries, and advanced electronics had threatened to stall production lines earlier this year.

Despite ongoing negotiations, there has been no breakthrough in easing export rules for these strategic materials. The standoff underscores India’s vulnerability in securing inputs for its clean energy transition and Make in India ambitions.

Electronics Manufacturing : A Strategic Pivot Point

India’s electronics sector sees a silver lining in closer cooperation with China. Multiple electronics manufacturing services (EMS) firms have pending proposals for joint ventures and technology transfers with Chinese suppliers. These partnerships could enable local production of:

• Printed circuit boards (PCBs)

• Display modules

• Camera sub-assemblies

• Batteries

According to a Moneycontrol analysis, China dominates over 90% of India’s imports in critical sectors from railway axles and wheels ($153M in FY25) to streptomycin antibiotics, weighing machines, and even low-value consumer goods like nail cutters and lighters.

Reducing this dependence through joint ventures would not only strengthen India’s electronics ecosystem but also boost domestic manufacturing under the PLI scheme.

Will India Ease Chinese FDI Restrictions ?

In a potential policy shift, India is considering loosening restrictions on Chinese investments introduced in 2020 after the Galwan border clash. Under Press Note 3, all investments from neighboring countries require prior government approval.

Officials now signal a rethink: “All options are open,” a senior source told The Economic Times. NITI Aayog has even suggested dropping mandatory approvals for up to 24% Chinese FDI in select sectors a move that could attract billions in capital and speed up growth.

Business Visas Open the Door for Faster Deals

India is also preparing to ease visa restrictions for senior Chinese executives. Companies like Vivo, Oppo, Xiaomi, BYD, Hisense, and Haier will finally be able to bring senior leadership back to India after nearly five years of remote management.

This is expected to:

• Speed up decision-making

• Enhance compliance with Indian laws

• Strengthen joint ventures with Indian manufacturers like Dixon Technologies and Amber Enterprises

Restoring business visas could provide the human capital required for deeper integration of Chinese technology and Indian manufacturing capacity.

Trade Friction with the U.S. Adds Urgency

The warming of India-China relations comes as New Delhi faces intensified U.S. trade pressures. The Trump administration has imposed a 50% tariff on Indian goods (effective August 27) in response to India’s ties with Russia. Meanwhile, Washington has eased tensions with Beijing by delaying tariffs and lifting chip export curbs.

This double standard underscores the strategic need for India to diversify trade relations and hedge against overdependence on Western markets.

Modi-Xi Meeting Signals a Reset

In a televised address, PM Modi emphasized that India-China cooperation impacts the welfare of 2.8 billion people. The meeting with Xi Jinping aimed to normalize ties strained by the 2020 Galwan Valley clashes, with both nations initiating steps to restore business confidence.

Analysts believe this shift is not just about trade but also about regional stability, especially as the two nations look to strengthen their positions in the Shanghai Cooperation Organisation (SCO) and global supply chains.

The Big Picture : Can India Balance Trade, Security, and Growth ?

India’s potential gains from improved ties with China span multiple sectors:

• Short-term relief in fertiliser supply to stabilize agricultural prices

• Rare earth access critical for electric mobility and electronics growth

• Chinese FDI and partnerships to accelerate domestic manufacturing

• Visa relaxations to ease bottlenecks in operations and technology transfer

Yet, the road ahead is complex. Strategic tensions, tariff pressures from the U.S., and concerns over economic dependence on China remain serious hurdles.

For India Inc., this evolving equation could mark a turning point—leveraging Chinese trade to meet domestic demand while hedging against global uncertainties.