India Tightens Scrutiny on Chinese FDI Amid Pakistan Tensions
| 2025-05-14
Indian authorities have reportedly begun re-evaluating several pending FDI proposals involving Chinese firms.
India plans stricter reviews of Chinese foreign investment proposals following China's support for Pakistan after the Pahalgam terror attacks.
India is set to impose more rigorous checks on foreign direct investment (FDI) proposals from Chinese companies, potentially delaying approvals for a number of pending joint ventures. The move comes amid escalating diplomatic tensions with China over its recent support for Pakistan in the aftermath of a deadly terrorist attack in Jammu and Kashmir.
According to a report by NDTV Profit, the Indian government is expected to increase scrutiny of Chinese-backed investment proposals, particularly in sensitive sectors such as electronics manufacturing, where discussions around new joint ventures are currently underway.
Government Tightens Investment Oversight
Indian authorities have reportedly begun re-evaluating several pending FDI proposals involving Chinese firms, including a potential Rs 1,000 crore joint venture between Chinese home appliance manufacturer Haier and Indian conglomerate JSW Group. While the project remains under government review, the NDTV Profit report suggests that broader concerns about national security and geopolitical alignment may cause delays across the board.
According to a report by NDTV Profit, the Indian government is expected to increase scrutiny of Chinese-backed investment proposals, particularly in sensitive sectors such as electronics manufacturing, where discussions around new joint ventures are currently underway.
Government Tightens Investment Oversight
Indian authorities have reportedly begun re-evaluating several pending FDI proposals involving Chinese firms, including a potential Rs 1,000 crore joint venture between Chinese home appliance manufacturer Haier and Indian conglomerate JSW Group. While the project remains under government review, the NDTV Profit report suggests that broader concerns about national security and geopolitical alignment may cause delays across the board.
The proposed measures follow growing unease in New Delhi about Beijing’s alignment with Islamabad after a terrorist attack in Pahalgam on 22 April, which killed several security personnel. The attack was initially claimed by The Resistance Force, an affiliate of the Pakistan-based group Lashkar-e-Taiba.
At a United Nations Security Council counter-terrorism committee session (#1267), China reportedly blocked efforts to name the group directly, prompting criticism from Indian officials. Chinese Foreign Minister Wang Yi also called for an international investigation into the attack—an action perceived by Indian observers as a diplomatic attempt to shield Pakistan from accountability.
Previous Restrictions and National Security Concerns
India had already placed limitations on FDI from neighbouring countries, including China, in April 2020, requiring government approval for any investment proposals. These measures were introduced in response to concerns that foreign entities could exploit pandemic-related market vulnerabilities.
Since then, several high-profile Chinese firms, notably telecommunications companies Huawei and ZTE, have faced operational constraints in India. Both were excluded from India's 5G rollout due to national security considerations.
The Indian government has also urged domestic telecom operators to source network equipment only from “trusted sources”, further limiting the involvement of Chinese vendors in critical infrastructure.
PLI Scheme Projects Likely to be Delayed
In addition to high-profile proposals like the Haier-JSW joint venture, various Indian companies involved in electronics manufacturing have been in discussions with Chinese firms under the Production-Linked Incentive (PLI) scheme—an initiative aimed at boosting domestic manufacturing.
However, according to sources cited by NDTV Profit, these projects are now likely to face extended timelines due to the heightened scrutiny and shifting geopolitical dynamics.
Diplomatic Strain Over Terror Links
The Indian government has long accused Pakistan of providing safe haven to militant groups operating in Kashmir and has criticised countries that appear to support Islamabad diplomatically or militarily. China’s recent stance at the UN, in concert with countries such as Turkey and Bangladesh, has added to existing tensions between New Delhi and Beijing.
In a further complication, China has continued to supply military equipment to Pakistan, some of which India claims has been used in cross-border operations.
India-China Relations and Economic Ties
India and China, Asia’s two largest economies, share a complex relationship marked by deep economic interdependence and persistent political friction. Despite a sharp decline in bilateral relations following a deadly border clash in Ladakh in 2020, trade between the two countries has remained significant.
China is among India’s largest trading partners, particularly in the technology and electronics sectors. However, political tensions—especially those involving China’s strategic ties with Pakistan—have repeatedly disrupted economic cooperation.
In recent years, India has made efforts to diversify its supply chains and reduce dependency on Chinese imports, while encouraging domestic alternatives through initiatives like 'Make in India' and the PLI scheme.
As tensions persist, New Delhi appears poised to further tighten control over foreign investment from China, signalling a cautious approach that prioritises national security over economic expediency.
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