Despite a recent diplomatic thaw between India and China, a surge in Chinese investments in India’s textile sector is unlikely, according to the Global Trade Research Initiative (GTRI) think tank. The improved relations, while positive, are not expected to significantly alter trade dynamics, especially in textiles.
The news comes after a meeting between Prime Minister Modi and President Xi Jinping, the first since 2019. This followed India’s agreement with China on patrolling the Line of Actual Control (LAC).
GTRI founder Ajay Srivastava. He pointed out that even before border tensions escalated in 2020, Chinese investment in India’s textile industry was minimal.
Limited Investment History & Policy Hurdles
From 2000 to 2024, China’s total investment in India was just $2.5 billion, a small sum compared to players like the US and Japan. Additionally, India’s Press Note 3 policy, implemented in 2020, requires government approval for all Chinese investments, further hindering inflows.
Focus on Raw Materials, Not Finished Garments
Even if restrictions ease, Srivastava doubts a significant shift. “China has historically shown limited interest in investing in Indian sectors that require technology transfer,” he said. This suggests that Chinese investments might bypass finished garment production, focusing instead on raw materials like cotton.
India’s Challenge: Trade Deficit and Reliance on Imports
The bigger concern, according to GTRI, is India’s trade deficit with China. India’s exports to China, including cotton, have stagnated, while imports from China, particularly textiles and clothing (41.5% of India’s total textile imports), have skyrocketed.
The Way Forward: Building Resilience
GTRI recommends a multi-pronged approach to reduce the trade deficit and strengthen India’s textile industry:
- Boost Domestic Manufacturing: India needs to invest in its own textile production capabilities to reduce reliance on Chinese imports.
- Diversify Import Sources: Looking beyond China for textile imports will create a more balanced trade environment.
- Promote Export Growth: Encouraging Indian textile exports will narrow the trade gap and boost the domestic industry.
Potential for Further Dependence
GTRI warns that even if Chinese investments do flow into the textile sector, they might focus on labour-intensive garment production. This could undermine domestic players further. Additionally, Chinese companies might set up assembly plants in India but still rely heavily on Chinese components.
The Bottom Line
The recent thaw in India-China relations may not translate to a textile boom in India. To build a resilient textile industry and reduce dependence on China, India needs to focus on domestic production, diversification, and export growth.
