The Pulse | Economy | South Asia

Why is India Allowing Chinese Equipment in Critical Government Projects Again?

Even sectors that are showcased as symbols of India’s economic success often depend on Chinese inputs somewhere in the production chain.

Indian Prime Minister Narendra Modi (left) and China’s President Xi Jinping shake hands at a meeting on the sidelines of the SCO Summit in Tianjin, China, Aug. 31, 2025.

India’s decision to grant a two-year exemption to four China-linked power equipment manufacturers, allowing them to bid for critical government projects, has once again exposed an uncomfortable reality. Despite years of political tensions, calls for self-reliance, and campaigns to boycott Chinese goods, the Indian economy remains deeply dependent on China.

The move is significant because it comes after New Delhi tightened scrutiny of Chinese investments and suppliers following the Galwan clashes in 2020. Yet, when it comes to sectors crucial for India’s economic growth and energy transition, the government has been compelled to acknowledge a simple fact: there are areas where India still does not have adequate domestic alternatives.

The irony could not be starker. India and China remain strategic rivals; their border dispute remains unresolved, and bilateral relations continue to be marked by suspicion. Yet, one of the world’s fastest-growing economies depends heavily on Chinese products and components to keep its industries functioning.

Journalist Shekhar Gupta once described this situation in provocative terms, asking whether India was becoming a “Chinese colony.” The phrase was not intended literally. It was a metaphor for an economic relationship in which one country becomes so dependent on another for critical supplies that its strategic choices become constrained.

A look at India’s trade figures explains why the analogy, however exaggerated, resonates with many. China has remained India’s largest trading partner, but the relationship is strikingly lopsided. India’s imports from China have surged while its exports remain comparatively modest, resulting in a trade deficit that has crossed $100 billion in recent years — one of the largest bilateral trade deficits that India has with any country. The imbalance is not simply a matter of numbers; it reflects India’s dependence on Chinese manufacturing and its inability to compete in several critical industrial sectors.

From mobile phones and electronics to solar panels, machinery, chemicals and pharmaceutical ingredients, China has become the principal supplier of numerous products that are essential to India’s manufacturing ecosystem. Even sectors that are showcased as symbols of India’s economic success often depend on Chinese inputs somewhere in the production chain.

The dependence goes far beyond consumer goods. Behind every smartphone assembled in India are Chinese components. India’s ambitious renewable energy program relies heavily on Chinese solar equipment. The Indian pharmaceutical industry, often celebrated as the “pharmacy of the world,” imports a significant portion of its active ingredients from China.

This is why the decision to allow Chinese firms back into government contracts is more than a routine policy adjustment. It is an admission that economic realities often trump political rhetoric.

The issue is not merely the trade deficit with China. Nations can run trade deficits without compromising their sovereignty. The real........

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