US less reliable? India may need to open the door wider to the Dragon
A member of the Prime Minister's Economic Advisory Council (PMEAC) has recommended that India ease restrictions on Chinese investment, particularly in labour-intensive manufacturing such as textiles, garments, footwear and furniture
The recommendation follows growing uncertainty in India-US trade relations under a tariff-heavy US trade policy approach
The advisory also suggests India reconsider its 2019 decision to opt out of the Regional Comprehensive Economic Partnership (RCEP) and pursue membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
India's trade imbalance with China remains large: India imported over $130 billion worth of Chinese goods in FY26 while exporting a comparatively small amount, with China overtaking the US as India's largest trading partner
The advisory frames the approach as balancing economic security considerations with national security concerns in engagement with China
RCEP — Why India Opted Out and What Rejoining Would Mean
The Regional Comprehensive Economic Partnership (RCEP) is a mega free trade agreement among the ten ASEAN members plus Australia, China, Japan, South Korea and New Zealand, signed in November 2020. India was a founding negotiating member from 2012 but withdrew in November 2019, citing concerns over a widening trade deficit with China, insufficient safeguards for agriculture and dairy, and inadequate rules of origin protections against Chinese goods being routed through RCEP members.
Key Details
- RCEP covers roughly 30% of global GDP and population, making it the world's largest trade bloc by these measures
- India's key concerns at exit: dairy sector exposure to New Zealand/Australia, agriculture exposure, and a base-year tariff structure seen as favouring China
- RCEP entered into force in January 2022 for the first batch of ratifying members
- India retains an option to join RCEP in the future under the agreement's accession provisions, distinct from a fresh negotiation
The advisory to "rethink RCEP" is a reversal of the 2019 rationale — arguing that with US tariffs raising uncertainty, RCEP's supply-chain integration benefits may now outweigh the trade-deficit risk that drove India's original exit.
CPTPP — A Trans-Pacific Alternative Without China (For Now)
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is an 11/12-member (with the UK's 2024 accession) trade bloc spanning the Asia-Pacific and the Americas, evolved from the US-led Trans-Pacific Partnership (TPP) after the US withdrew in 2017. It is considered a "gold standard" high-ambition trade agreement covering goods, services, digital trade, labour and environmental standards.
Key Details
- Original 12 TPP members negotiated 2010-2015; became CPTPP (11 members) after US exit in 2017, entered into force December 2018
- United Kingdom acceded in 2024, becoming the first new/non-founding member and first European member
- China formally applied for CPTPP membership in September 2021; India is not currently a member and has not formally applied
- CPTPP has stricter rules on state-owned enterprises, digital trade and labour standards than RCEP, seen as harder for India to meet given domestic reform gaps
Unlike RCEP, CPTPP does not include China, so recommending both RCEP re-engagement and CPTPP membership reflects a hedging strategy — deepening China-linked supply chains via RCEP while diversifying export access to non-China Western-aligned markets via CPTPP.
India-China Trade Imbalance and Investment Screening (Press Note 3)
India's trade deficit with China widened to a record $112.16 billion in FY26 (imports of $131.63 billion against exports of just $19.48 billion), with China displacing the US as India's largest trading partner. Since April 2020, all Chinese (and other land-bordering country) foreign direct investment into India has required prior government approval under an amendment to India's FDI policy known as "Press Note 3," which removed the automatic route for investment from countries sharing a land border with India.
Key Details
- Press Note 3 (2020) was introduced primarily to prevent "opportunistic takeovers" of Indian companies during the COVID-19 economic downturn
- It applies to all entities of a country sharing a land border with India (China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, Afghanistan) or where the beneficial owner is situated in/is a citizen of such a country
- The advisory's call to "attract more Chinese investment" implicitly argues for relaxing or fast-tracking Press Note 3 approvals for labour-intensive manufacturing FDI, while retaining scrutiny in security-sensitive sectors
- India's exports to China stood at $19.48 billion in FY26, growing 36.7% over FY25 ($14.25 billion), but from a much smaller base than imports
The core imbalance driving this advisory (over $130 billion in imports from China versus a fraction in exports) is precisely what Press Note 3 was designed to manage from an investment-security standpoint, creating tension between the economic case for more Chinese manufacturing FDI and the security rationale that restricted it in 2020.
- India's FY26 trade deficit with China: $112.16 billion (imports $131.63 bn, exports $19.48 bn)
- India's imports from China grew ~28% in Q1 FY27 (April-June 2026)
- RCEP: signed November 2020, ~30% of global GDP/population; India withdrew November 2019
- CPTPP: 11 founding members (2018), UK acceded 2024; China applied for membership in September 2021
- Press Note 3 (2020): mandates government-approval route (not automatic route) for FDI from land-bordering countries, including China
- China displaced the US as India's largest trading partner in FY26; bilateral trade with China reached ~$151.1 billion versus ~$140.2 billion with the US