No rethinking on support for Chinese for investments in India: Piyush Goyal

European Union has suggested India devise its own mechanism instead of paying carbon tax for imports, says Commerce Minister

India is not “rethinking” supporting investments from China, said Commerce and Industry Minister Piyush Goyal on Tuesday, referring to a proposal made in the Economic Survey 2024.

The survey by India’s chief economic advisor last week said India had two “choices” to benefit from the so-called China plus one strategy, either by integrating into that country’s supply chain or by promoting foreign direct investment (FDI).

“Chief economic advisor’s report speaks about new ideas and gives out their own thinking. It is not at all binding on the government and there is no rethinking to support Chinese investments in the country,” Goyal told reporters in Delhi.

“India faces two choices to benefit from China plus one strategy: It can integrate into China's supply chain or promote FDI from China. Among these choices, focusing on FDI from China seems more promising for boosting India's exports to the US, similar to how East Asian economies did in the past. Moreover, choosing FDI to benefit from China plus one approach appears more advantageous than relying on trade," said the survey.

Government data shows that investment from China hasn’t been robust, but India’s dependence on Chinese goods has been rising for almost two decades. In the January-March quarter of 2024, FDI equity inflow from China stood at $1.7 million, or just 0.01 per cent of the total inflows. On a cumulative basis, Chinese FDI equity inflows between January 2000 and March 2024 stood at $2.5 million.

More than four years ago, India made prior approval mandatory for foreign investments from countries that share a land border with India – China, Pakistan, Nepal, Myanmar, Bhutan, Bangladesh, and Afghanistan – to curb opportunistic takeovers of domestic firms after the pandemic.

India-China ties are under strain after their militaries clashed in the Galwan Valley in June 2020. Despite strained ties, China was India’s largest trading partner in FY24 and has been India’s largest import partner for almost two decades. India’s trade deficit with China was the highest in FY24.

Carbon tax

Goyal said the European Union (EU) has suggested that instead of paying for carbon border tax, India instead can devise its own mechanism.

“They (EU) are keen to pursue that (carbon border adjustment mechanism, or CBAM) and have offered – India could instead of paying CBAM taxes to the EU, (can) devise its own mechanism. We will consider their suggestion, and come out with whatever is good for Indian industry and the people of India,” Goyal told reporters.

CBAM will result in the imposition of a levy on imported carbon-intensive products such as cement, fertiliser, and metals. Several countries, including India, have raised concerns about its impact on their exports. It entered a transition phase on October 1 and full implementation is planned by January 2026.

“As regards CBAM, we are in dialogue with the European Union. My own thinking is that CBAM will hurt the EU – their infrastructure, cost of living, industrial and consumer products, all will become expensive and their economy will face further distress, but that’s my reading of CBAM,” said Goyal.