Big boost for China amid thaw in ties as India plans to ease curbs on Chinese firms

New Delhi: Amid a new found thaw in relations with China, it seems India is attempting to bolster economic ties with the Chinese behemoth. Reports indicate that the Union Finance Ministry is set to lift five-year-old restrictions that prevented Chinese companies from participating in Indian government projects. 

When were the restrictions applied?

These restrictions were implemented after the violent border clashes in 2020, making it mandatory for any Chinese company to obtain political and security clearance from a government committee to participate in bidding processes in India.

Is India taking a step back?

Officials told the media that the government is working on completely removing this registration process, although the final decision rests with the Prime Minister's Office (PMO)., citing the Reuters report, said that if this is happening, it means India is taking a step back.

What are experts saying about India's stance?

"If this is true, it would be another retreat for India. India is now trying to improve relations on China's terms. India has quietly abandoned its earlier demand for the restoration of the pre-2020 status quo in Ladakh. India's stance has now shifted from 'restoring the old status quo' to merely maintaining 'peace and tranquility on the border'," Geopolitical analyst Dr. Brahma Chellaney said in a post on social media.

Why did India move to lift the restrictions?

The biggest reasons behind lifting these restrictions are the delays in projects and the severe shortage of goods. When these rules were introduced, the Chinese state-owned company CRRC had to withdraw from a multi-million dollar train manufacturing contract. 

The power department and other government departments had complained to the government that major projects in the country were stalled due to the unavailability of Chinese goods. The shortage of equipment, especially in the power sector, is jeopardizing India's power targets for the next 10 years. A high-level committee headed by former Cabinet Secretary Rajiv Gauba has also recommended easing these restrictions.

What is the impact of this new development?

The impact of this move by the Indian government is now being seen in the Indian stock market. As soon as there were whispers of the return of Chinese companies, the shares of domestic companies fell sharply. Shares of the government company BHEL plummeted by 10.5%, while shares of a major company like L&T also fell by more than 3%. Investors fear that the entry of Chinese companies will intensify competition for Indian companies.

Why did India have to turn to China?

Surprisingly, the US is also believed to be behind India's changed stance. President Donald Trump has imposed a heavy 50% tax on Indian goods, and the growing closeness between the US and Pakistan has further increased India's concerns. Amidst this pressure, PM Modi visited China last year after 7 years, and an agreement was reached to normalize relations. Following this, direct flights between the two countries resumed, and visa rules for Chinese professionals were also eased. However, India is still proceeding cautiously, and the ban on Chinese foreign direct investment (FDI) has not yet been completely lifted.