Niti Aayog member Arvind Virmani stated on Sunday that it would be more beneficial for India to encourage Chinese firms to invest and produce goods domestically rather than continuing to import goods from China. Virmani's comments came in response to a proposal from the pre-budget Economic Survey on July 22, which advocated for attracting foreign direct investment (FDI) from China to enhance local manufacturing and access the export market.

Virmani explained that from an economist's perspective, the trade-off involves deciding whether to continue importing certain goods from China for the next 10 to 15 years or to have Chinese firms invest in India and manufacture those goods locally. He conveyed to PTI that if imports are unavoidable, it would be preferable to have Chinese companies set up operations in India to produce those goods.

The Economic Survey suggested that as the US and Europe shift their sourcing away from China, it would be more effective for Chinese companies to invest in India and export products to these markets, rather than relying on imports from China. Virmani elaborated that each category of goods should be evaluated individually to assess this trade-off.

The survey highlighted that India faces two strategic choices to leverage the 'China plus one strategy': integrating into China's supply chain or promoting FDI from China. Virmani opined that focusing on FDI from China could be more advantageous for boosting India's exports to the US, similar to the approach taken by East Asian economies in the past. He argued that opting for FDI rather than trade could be more beneficial, given the growing trade deficit with China, which is India's largest import partner. Following the intense military clash in the Galwan Valley in June 2020, relations between India and China have deteriorated significantly. The Indian and Chinese militaries have been in a stand-off since May 2020, and although disengagement has occurred at several friction points, a full resolution of the border dispute has not been achieved. India has maintained that normalising relations with China is contingent upon achieving peace in the border areas. India has taken measures such as banning over 200 Chinese mobile apps, including TikTok and WeChat, and rejecting significant investment proposals from Chinese companies like BYD. However, earlier this year, the Competition Commission of India approved JSW Group's acquisition of a 38% stake in MG Motor India Pvt Ltd, which is a wholly-owned subsidiary of Shanghai-headquartered SAIC Motor. Despite receiving minimal FDI from China, bilateral trade between the two countries has expanded significantly. China became India's largest trading partner with $118.4 billion in two-way commerce for 2023-24, surpassing the US. India's exports to China increased by 8.7% to $16.67 billion in the last fiscal year, with notable growth in sectors such as iron ore, cotton yarn, spices, fruits and vegetables, and plastics. Imports from China rose by 3.24% to $101.7 billion, widening the trade deficit to $85 billion from $83.2 billion the previous year. Historically, China was India's top trading partner from 2013-14 to 2017-18 and in 2020-21, with the UAE and the US serving as the largest trading partners in other years.