For starters, embed geopolitics into economic policy. For desserts, craft India’s grand strategy.
The lack of a grand strategy in India’s statecraft is expressing itself through poor thought-craft. As if the military India-China border dispute and India’s US$85 billion trade deficit with the dragon were not enough, one advisory arm of the government is now pushing the idea of inviting Foreign Direct Investment (FDI) from a nation that has made its strategic hostility against India clear on four counts: First, its unending lust to grab Indian territory; this is in tune with its routine territory-grabbing gambits, the latest but certainly not the last being the confrontations in the South China Sea region that have the potential to turn into conflicts.
Second, its support to, and hyphenation with, the terrorist state of Pakistan; here it provides strategic cover, even legitimacy in Financial Action Task Force lists, to a country imploding under its own aggression and uses this failed state as a proxy against India. Third, its attempt at technological infiltration through Huawei- and ZTE-made 5G equipment; thankfully, that was stopped by the government. And lastly, its map-making games. All of which add up to its grand strategy of regional dominance as a route to displacing the US from the global order.
And yet, the recent Economic Survey 2023-2024—otherwise a fine document, rich in perspectives and data—looks at inviting FDI from China, a country that is one skirmish away from being called an enemy nation. Riding two trends (a China plus one shift of the West and the strategic-economic isolation of China), the Survey offers India two choices. Either integrate into Chinese supply chains or promote FDI from there. The latter, it suggests, can help boost India’s exports to the US. “As the US and Europe shift their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing from China, adding minimal value, and then re-exporting them,” it suggests.
The Survey rides on the examples of Brazil, Türkiye, and Europe, all of which have raised barriers to imports of Chinese electronic vehicles but enacted measures to attract Chinese FDI into the sector. Such blind copying of global policies and pasting them on India are fraught with danger, the biggest being the absence of understanding geopolitical consequences. Neither of these three countries share a border with China; India does. The only danger to these countries is a skewed trade discourse.
The Survey rides on the examples of Brazil, Türkiye, and Europe, all of which have raised barriers to imports of Chinese electronic vehicles but enacted measures to attract Chinese FDI into the sector.
Worse, given that Xi has turned every Chinese citizen and institution into a potential intelligence asset, allowing Chinese FDI is like opening the backdoor to its spies. There are five laws that ensure this—the Counter-espionage Law (2014), the National Security Law (2015), the National Cybersecurity Law (2016), the National Intelligence Law (2017), and the Personal Information Protection Law (2021).
Article 7 of the National Intelligence Law, for instance, demands that “All organisations and citizens shall support, assist, and cooperate with national intelligence efforts.” As do Articles 9, 12, and 14. For India to open its front door to Chinese FDI and imagine that the accompanying management and labour will behave themselves, and not use their offices to spy even when intelligence is demanded of them by law displays a complete ignorance of the way China functions.
It is good that the government has rejected this idea. “The government of India at present has not changed its stand,” Commerce and Industry Minister Piyush Goyal said. Minister of External Affairs Dr S. Jaishankar, too, is clear. “The relationship right now with China is not good, not normal,” he said a few days after the Survey was released. “As a neighbour, we hope for a better relationship, but that can only happen if they respect the LOC (Line of Control) and respect agreements which they have signed in the past.”
It is good that the government has rejected this idea. “The Government of India at present has not changed its stand,” Commerce and Industry Minister Piyush Goyal said.
The Chinese assault on India stands at the intersection of three ministries—external affairs, defence, and finance. An articulated grand strategy document would have brought all three on the same page, under the Prime Minister’s Office. It is because India does not have a grand strategy that such a misadventure by the Survey has occurred.
Beijing does what its “Chairman of Everything” and President Xi Jinping orders. Over the past decade, Xi has turned China into a strategic rogue nation, from which every country needs to decouple. But to imagine that “Emperor Xi”, who has appropriated the idea of grand strategy from the US and reshaped it over the past decade, will acquiesce to getting Chinese firms to invest in India to dislodge themselves from their home turf is living in a world where international relations do not exist.
On the other side, to think that the US will not be able to see through this diversion that hides the “Financed by China” wolf in “Made in India” sheep, is strategic naïveté . Finally, believing that India can become a global hub in a China-plus-one world with the help of Beijing, simply because it has the scale and the market, will get us nowhere.
The invitation to Chinese FDI follows China’s annual plenary session that ended on 18 July. The plenary, which charts the country’s economic policy for the next five years, stands amidst worries about an economic slump, a crisis in the property market, and rising unemployment internally and raising tariff walls and decoupling or derisking externally. On his part, Xi wants a stronger role for the Chinese Communist Party in the economy, a return to and expansion of the State in business. It seeks to fund avenues for strategic industries such as aerospace and aviation, new energy, biomedicine, quantum technology, advanced information technology and Artificial Intelligence (AI). But that doesn’t mean it will stop capital allocation to the old and low-productivity industries.
In a 2020 article in the Communist Party of China journal, Qiushi, Chinese President Xi Jinping clearly states that his nation must integrate into international production chains, thereby increasing the dependence of nations on China.
Further, Beijing’s weaponisation of global value chains remains a work in progress. In a 2020 article in the Communist Party of China journal, Qiushi, Chinese President Xi Jinping clearly states that his nation must integrate into international production chains, thereby increasing the dependence of nations on China. He argues that such integration into global production chains will form a powerful countermeasure against arbitrary cutting off supply by foreign powers. Thus, China sees global value chains as an insurance policy against any punitive containment measures.
The Survey’s proposal to invite Chinese investment to boost exports comes at a time when the Indian and Chinese governments are discussing ways to resolve the border standoff. Jaishankar met his Chinese counterpart Wang Yi twice in July—most recently at the sidelines of the East Asia Summit, and previously at the Shanghai Cooperation Organisation (SCO) summit—in which they discussed the border issue. This has given rise to speculation among Indian circles that there’s a “thaw in the offing”.
Nothing could be further from the truth. Since the 2020 Galwan clashes, the Indian government has described the ties between the two nations as abnormal and China’s bid to change the status quo at the border as having eroded the entire basis of the bilateral relationship. Now, the invitation to the Chinese capital, even before the border standoff has been resolved, amounts to exposing our strategic weaknesses and revealing our lack of geopolitical understanding. Likewise, New Delhi must not underestimate Beijing. To presume that Xi will enable the creation of a rival by getting Chinese companies to invest in India is not how a US$4 trillion economy ought to think.
Poor thought-craft can weaken a country’s emerging statecraft. Prime Minister Narendra Modi must not get entangled in the complex threads of Xi’s hegemonic ambitions. Although Goyal has snuffed this idea out before it gathers any further policy attention or business momentum, India cannot be seen to be reacting to every random idea. It needs a cohesive and all-encompassing approach.
That approach will be to articulate India’s grand strategy. The Cabinet Committee on Security, composed of Prime Minister Modi; EAM Dr S. Jaishankar; Minister of Defence, Raj Nath Singh; Minister of Home Affairs, Amit Shah; and Minister of Finance, Nirmala Sitharaman, along with the military leadership, need to design it and through it infuse strategic thinking into every aspect of India’s statecraft.
Gautam Chikermane is Vice President at the Observer Research Foundation.
Kalpit A. Mankikar is a Fellow at the Observer Research Foundation.
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Gautam Chikermane is Vice President at Observer Research Foundation, New Delhi. His areas of research are grand strategy, economics, and foreign policy. He speaks to ...
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Kalpit A Mankikar is a Fellow with Strategic Studies programme and is based out of ORFs Delhi centre. His research focusses on China specifically looking ...
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