Electronics to rare earth: How India Inc may get a boost from better ties with China

PM Modi said India is committed to taking forward its ties with China based on mutual trust, respect and sensitivity as cooperation between the two countries is linked to the welfare of 2.8 billion people. (Image: PMO via PTI)

As Prime Minister Narendra Modi met Chinese President Xi Jinping on Sunday on the sidelines of the Shanghai Cooperation Organisation (SCO) summit in Tianjin, India may be looking to leverage the ongoing thaw with Beijing for a series of trade boosts, according to reports.

Officials and industry sources cited in the reports point to potential gains in fertilisers, rare earth minerals, electronics manufacturing, and foreign direct investment, even as New Delhi faces tariff pressures from Washington.

The US has hardened its stance on India for its ties with Russia and buying Russian oil, imposing an additional national security tariff of 25 per cent over and above additional tariffs, taking the total to 50 per cent which came into effect on August 27.

Fertilisers

India’s most immediate concern is fertilisers. Earlier this month, Beijing lifted curbs on the export of Di-Ammonium Phosphate (DAP) fertilisers, rare earth magnets, and tunnel boring machines after External Affairs Minister S Jaishankar pressed the issue with Chinese foreign minister Wang Yi. According to The Economic Times, shipments had already begun, providing short-term relief.

But the reprieve will be brief. China now plans to reimpose export restrictions on specialty fertilisers from October, according to a senior industry official. “It's a temporary fix because China is closing the export window from October. They will be closing it for the entire world market, not only for India," Rajiv Chakraborty, President of the Soluble Fertilizer Industry Association, told news agency PTI in an interview, warning that consignments will face delays and tighter inspections.

India is 95 per cent dependent on Chinese supplies for specialty fertilisers. Roughly 80 per cent are imported directly from China, while another 20 per cent come indirectly through Chinese intermediaries. According to the report, the earlier halt in supplies triggered a 40 per cent price surge, and with the peak demand season for cash crops like grapes and bananas starting in September, fresh curbs are expected to push prices higher, impacting farmers directly. Fertiliser restrictions had disrupted the supply of Di-Ammonium Phosphate during the Rabi season, while curbs on rare earths had alarmed the auto and electronics industries. Tunnel boring machine delays had also slowed key infrastructure projects.

Rare earths and industrial inputs

Rare earth minerals are another priority. The auto and electronics industries flagged severe risks when China restricted shipments of rare earth magnets earlier this year. These magnets are critical for motors, batteries, and advanced electronics. Chinese restrictions had created bottlenecks that threatened to slow down Indian production lines. There has been no breakthrough in the discussions between India and China over supply of rare earth magnet over the ease of exports rule.

Electronics manufacturing

Beyond imports, India is also eyeing Chinese cooperation in scaling its electronics manufacturing ecosystem. According to industry sources cited by The Economic Times, several electronics manufacturing services (EMS) firms have proposals pending with the government for joint ventures and technology-transfer deals with Chinese suppliers. These partnerships are seen as essential for local production of printed circuit boards (PCBs), display modules, camera sub-assemblies, and batteries.

A Moneycontrol analysis shows that Beijing supplies over 90 percent of India’s imports of pencil leads, cellophane tape, and weighing machines, as well as critical railway parts such as axles and wheels.

The scale of dependence is stark. A Moneycontrol analysis found that China supplies over 90 percent of India’s imports in critical categories such as railway axles and wheels ($153 million in FY25), weighing machines ($18 million in FY25, double FY18 levels), streptomycin antibiotics, and even low-value items like table fans and nail cutters. In several consumer categories, including lighters and jewellery boxes, import reliance surged to above 90 per cent after the pandemic.

Investments and FDI

India is also considering whether to ease restrictions on Chinese investments. Under Press Note 3, introduced in April 2020, all investments from countries sharing a land border with India require prior approval. At the time, the rule was aimed at preventing opportunistic Chinese takeovers after the Galwan clashes.

Now, officials say the stance may change. “If need be, we can take a relook at Press Note 3. All options are open,” a senior official told The Economic Times. Recently, NITI Aayog has suggested dropping mandatory approvals for up to 24 per cent Chinese FDI in certain sectors.

Business visas

Another area of movement is visas. After almost five years of curbs, India has signaled it will clear non-technical visas for senior Chinese business executives, including CEOs, country heads, general managers, and finance and HR chiefs.

According to The Economic Times, companies such as Vivo, Oppo, Xiaomi, BYD, Hisense, and Haier will finally be able to bring senior managers back to India, easing operational bottlenecks. Executives of these firms have been managing Indian operations remotely from China since 2020, slowing decision-making and compliance.

Industry sources have been quoted to say that the absence of visas had also hampered joint ventures — with Indian contract manufacturers like Dixon Technologies and Amber Enterprises forced to travel to China to seal deals. Restoring business visas is expected to accelerate partnerships and compliance with Indian rules, such as the Companies Act requirement that at least one director reside in India for 182 days a year.

Cushion against tariffs

The recalibration of ties also comes against the backdrop of worsening trade friction with the United States. The Trump administration’s 50 per cent tariff on Indian goods, effective from August 27, has rattled exporters. According to reports, the development has added urgency to India’s effort to diversify trade and strengthen alternative channels.

India also noted that the US has taken a more accommodating view on Beijing by extending the trade truce and delaying imposition of tariffs by another 90 days besides moving to lift curbs on export of high-end chips to China. This is while the Trump administration has chosen to come down hard on India.

Modi-Xi meeting

In an interview with Japan's The Yomiuri Shimbun, Modi said stable, predictable, and amicable bilateral relations between India and China can have a positive impact on regional and global peace and prosperity.

In his televised opening remarks at the meeting with Chinese President Xi Jinping ahead of the annual SCO summit, PM Modi said India is committed to taking forward its ties with China based on mutual trust, respect and sensitivity as cooperation between the two countries is linked to the welfare of 2.8 billion people.

It is learnt that the overall focus of the Modi-Xi talks was to carry forward the process to normalise the bilateral ties that came under severe strain following the eastern Ladakh border standoff.

In the last few months, both sides have initiated a series of measures to reset their ties that came under severe strain following the deadly clashes between Indian and Chinese troops in Galwan Valley in June 2020.