India may relax rules for Chinese investment in electronics; but only with a tech transfer, partnership

Time of India

5 days ago

Government is likely to support Chinese investments in the electronics sector if they involve joint ventures with Indian companies and include technology transfer, rather than just setting up assembly units, according to officials.
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This approach aims to strengthen domestic capabilities while ensuring greater value addition and knowledge sharing within the country.
Officials told ET that the ministry of electronics and IT (MeitY) sees some Chinese investments as crucial for boosting local manufacturing and making the upcoming component incentive scheme successful.
As a result, the ministry is supporting a relaxation of rules for investments from China.
These perspectives align with industry stakeholders seeking governmental approval for partnerships with Chinese entities, and with Niti Aayog's suggestion to permit Chinese organisations to acquire up to 24% stake in Indian companies without additional scrutiny.
This support for Chinese participation in electronics manufacturing follows the recent meeting between external affairs minister S Jaishankar and his Chinese counterpart Wang Yi in Beijing.
Officials stressed that Chinese investments should only be allowed through joint ventures with Indian partners, with clear stipulations regarding technology and expertise transfer.
"If some player just wants to add assembly lines in partnership with a Chinese firm, it won't be supported," ET reported, quoting an official.
Another official said that domestic organisations need to acquire technological expertise, and Chinese support is essential for scaling up, given that many components and manufacturers are based there.
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Chinese investments are also crucial for enhancing local value addition in electronics products, a key governmental objective.
The electronics sector has achieved over 20% local value addition within six to seven years, primarily driven by production linked incentives.
The government aims to exceed 30% in two to three years and reach 38% within five years. China leads globally with 38% local value addition.
"What is fundamentally important for the government is that an electronics ecosystem needs to develop in India and if some joint venture proposals enable this, then support will be provided," a senior electronics executive told ET.
Indian companies are pressing for a review of trade relations with China, especially over the restrictions introduced through Press Note 3, a 2020 policy change that tightened foreign direct investment (FDI) norms for countries sharing a land border with India.
The move came in response to the border clashes with China that year.
Since then, India has ramped up local smartphone manufacturing and exports, reducing its reliance on Chinese imports.
However, in what appears to be a retaliatory response, China has begun imposing informal trade barriers, especially targeting the electronics sector.
Over the past eight months, these curbs have intensified, affecting manufacturing inputs and creating disruptions in supply chains.
Adding to the concern, China has reportedly asked some of its firms to scale down or shut their operations in India and withdraw Indian staff, aiming to limit technology transfer to Indian companies.
The latest blow came with China's restrictions on the export of key rare earth materials, critical components for smartphone manufacturing, sparking fears of input shortages.
To counter this, India is rolling out a Rs 22,919-crore electronics component manufacturing scheme to boost domestic production. However, Indian manufacturers still rely on Chinese expertise for components, as Chinese firms currently dominate global supply chains.
Industry representatives recently raised concerns with the Indian government, warning that China's informal restrictions could significantly impact competitiveness and threaten India's ambitious $32-billion smartphone export target for FY26.
India's mobile phone manufacturing has surged from $26 billion in FY19 to $64 billion in FY25, with exports exceeding $24 billion. Once ranked 167th in India's export basket in FY15, smartphones have now become the country's top export item, with industry players urging the government to resolve the trade hurdles with China.