India’s economic strategy should prioritise pragmatism, focusing on systemic reforms addressing key systemic issues while balancing foreign direct investment (FDI) with the protection of domestic industries, according to experts participating in panel discussion on Union Budget 2025 by ETCFO & ETBFSI.
Radhika Rao, Executive Director and Senior Economist at DBS Bank, said that India’s economic strategy should be rooted in pragmatism.
In the budget, we might not see any country-specific policy changes, but it will likely highlight the systemic issues the government seeks to address. For FDI from China, the approach leans toward collaboration. Investments are welcome, but often under stricter scrutiny to ensure local participation.Radhika Rao, ED & Senior Economist, DBS Bank
Sectors like advanced manufacturing, EVs, chip manufacturing, and pharma could benefit from selective FDI, whereas areas with ample domestic players might see more restrictions.
At an ETCFO panel discussion on the expectations from the Union Budget, corporate leaders and experts say key reforms are needed to power the economy, address wage stagnation and urban employment challenges.
This sentiment was echoed by Kunal Kundu, Senior Economist at Societe Generale, who advocated for “adequate checks and balances” in managing FDI.
China needs India, and so does India. Political situations should not overshadow economic collaboration, However, this approach requires a long-term strategy with clear messaging to attract investments without ambiguity.Kunal Kundu, India Economist, Societe Generale
The impact of geopolitics on FDI is evident in past incidents. Aniket Talati, former President of Institute of Chartered Accountants of India (ICAI), highlighted the challenges professionals faced during a period of strained India-China relations.
More than 350 CAs and CS professionals were investigated for incorporating companies with Chinese equity ownership. Economic laws shouldn’t change based on political relationships. Investments from countries like China and the US are essential, but the government must ensure clarity in its stance.Aniket Talati, former President, ICAI
Beyond FDI, there is a need to address the challenges posed by the influx of Chinese goods into India. Raman Aggarwal, Director at FIDC, spoke on the adverse impact on MSMEs. “Chinese goods flooding the Indian market spell a death knell for small and medium enterprises. While technology transfer and investments should be encouraged, the tariff structure must be reviewed to counter dumping and protect MSMEs,” he said.Amid these challenges, India’s “China-plus-one” strategy offers immense potential for the manufacturing sector. Inderjit Camotra, MD & CEO of Unity Small Finance Bank, said India is poised to become a global manufacturing hub.
This is India’s moment to capitalise on the China-plus-one strategy. By investing in MSMEs and creating semi-urban employment, we can boost rural spending and take Make in India to the next level.Inderjit Camotra, MD & CEO, Unity Small Finance Bank
The backdrop
India’s approach to foreign direct investment (FDI) from China has evolved significantly in recent years, impacted by geopolitical tensions, economic priorities, and national security considerations. Historically, China has been a prominent investor in sectors like technology, electronics, and renewable energy in India. However, following border disputes and growing global concerns over China’s influence, India tightened its FDI norms in 2020, requiring government approval for investments from countries sharing land borders with India.
In fact, recently before the release of Union Budget 2024 in July, Chief Economic Advisor V Anantha Nageswaran had proposed that India could benefit significantly by substituting select imports from China with targeted investments. This strategy would enhance Indian manufacturing capabilities and integrate the country into the global supply chain, leveraging the advanced economies’ shift toward a “China plus one” sourcing model to diversify beyond China. He said so in one of the chapters of economic survey 2024.
Experts and policymakers advocate for a balanced approach that fosters growth while safeguarding domestic interests.
The decline in China’s own FDI inflows further adds to the case of global investment dynamics. Between January and October 2024, FDI inflows into China decreased by approximately 29.8 per cent, amounting to around 693.21 billion yuan (USD 95.84 billion).
The global trend of diversifying supply chains away from China has also impacted its attractiveness as an investment hub.
