By TP Seetharam
Over the past year, India and China have taken incremental, measured steps towards a gradual thaw in bilateral relations. Meetings between Prime Minister Narendra Modi and Chinese President Xi Jinping on the sidelines of the SCO Summit in Tianjin and the BRICS Summit in Kazan have framed the relationship as one of “development partners and not rivals.” The resumption of direct flights and pilgrim exchanges has added a functional dimension to this diplomatic signalling.
Bilateral trade
On the economic front, bilateral trade has expanded to a record $155 billion in 2025, registering over 12% year-on-year growth. Between January and October 2025, nearly 80% of Indian imports from China fell within four industrial workhorse categories: electronics ($38 billion), machinery and capital goods ($25.9 billion), organic chemicals ($11.5 billion), and plastics ($6.3 billion). These sectors encompass critical inputs such as integrated circuits, lithium-ion batteries, solar cells and modules, transformers, PVC resin, antibiotics, and active pharmaceutical ingredients (API) that anchor India’s core industries to Chinese supply chains.
Beyond a reliance on goods where China often exercises global supply chain leadership, India’s industrial ambitions involve deeper operational and technological linkages. Several key sectors depend on Chinese-origin machinery and, in many cases, on Chinese technical teams during commissioning and ramp-up. Consequently, even when production occurs in India, core elements of the underlying technology continue to be sourced externally.
Battery ecosystem
A case in point is India’s emerging battery ecosystem, central to the electric vehicle (EV) transition and the 2070 net-zero emissions commitment. India currently imports roughly 75-80% of its lithium-ion batteries from China, and efforts to localise cell manufacturing have revealed the extent of its reliance on externally sourced critical minerals such as lithium, cobalt, and nickel – materials over which China controls an estimated 60-70% of global production and nearly 90% of refining capacity. Beyond raw materials, advanced battery manufacturing machinery and equipment continue to be imported at scale, with over 70% of battery production equipment being presently sourced from abroad. This reliance extends to personnel as well: visa delays for Chinese technicians have, in some instances, stalled the commissioning of large battery manufacturing units, as specialised imported machinery required vendor-supported installation and calibration.
These patterns are not confined to sunrise sectors such as batteries and renewables but are equally evident in legacy industries. The thermal power sector illustrates similar structural linkages, which became more visible following the 2020-21 curbs on Chinese economic engagement, including Press Note 3 issued by the Ministry of Commerce & Industry mandating government approval for FDI from land-border sharing countries and restrictions on Chinese participation in government procurement contracts. Nearly 48-50 GW of existing thermal generation capacity operates with Chinese-origin equipment, particularly supercritical boiler systems, steam turbines, generators, and flue gas desulphurisation units. As a result, in September 2025, the Association of Power Producers (APP) noted in a letter that restrictions had constrained domestic vendors’ ability to offer competitive pricing and credible timelines for projects slated for completion by 2030, suggesting that calibrated access to Chinese equipment could reduce project costs to roughly half of the prevailing ₹130-140 million per megawatt.
Against this backdrop, recent media reports suggest that a pragmatic reassessment may be underway. The government is reported to have been reviewing certain post-2020 restrictions, with state-run power and coal companies said to have been granted limited exemptions to procure Chinese equipment amid mounting shortages and project delays. A similar time-bound exemption is reportedly under consideration for critical coal-sector machinery, as transmission projects face a projected 40% shortfall in transformers and reactors over the next three years.
While no formal decision has been announced, such an exercise is consistent with the broader pattern of diplomatic re-engagement and a growing recognition of India’s multi-dimensional industrial linkages. Similar relaxations could be extended in a progressive, phased manner to the private sector, which accounts for almost 52% of India’s installed generation capacity and is responsible for a substantial share of upcoming thermal and renewable additions. If India is to meet its stated capacity targets, including 97 GW of coal and lignite-based thermal additions, 500 GW of non-fossil fuel capacity by 2030, and expanded semiconductor and domestic cell manufacturing ambitions; easing restrictions that were estimated to affect access to ₹700-750 billion worth of public procurement contracts will be a crucial step forward.
The prevailing capital cost being quoted by domestic suppliers such as BHEL and L&T is in the range of Rs 12–15 crore per MW. At this capital cost level, the fixed charge component alone translates to over Rs 4.5/kWh, excluding fuel costs.
Further, the fuel cost is expected to range between Rs 1.0–2.5/kWh, depending on the plant location and coal logistics. Accordingly, the total tariff works out to approximately Rs 6.5–7.0/kWh.
At such tariff levels, it is pertinent to assess whether Discoms would have the appetite to absorb this cost, particularly during daytime hours when thermal power scheduling is significantly reduced due to high renewable energy (RE) generation availability.
Any reopening, however, should be accompanied by parallel efforts to strengthen the capacity and competitiveness of Indian manufacturers. Joint ventures offer one viable pathway, particularly when structured with clear localisation milestones, well-defined technology transfer provisions, and R&D collaboration frameworks. Such arrangements can enable Indian firms to absorb process know-how and managerial expertise while supporting timely project execution. Over time, this approach can help expand domestic value addition and deepen technological capabilities within India’s industrial base.
An illustration of such regulated engagement is visible in India’s first dedicated transhipment hub, Vizhinjam International Seaport Limited near Thiruvananthapuram. Given China’s dominance in the global market for ship-to-shore cranes, 32 fully automated units were supplied to the port by Shanghai Zhenhua Heavy Industries Company Limited (ZPMC). Although procurement restrictions were introduced post-2020, commissioning proceeded under tightened security conditions, including denial of landing permission to Chinese crew and installation by Indian personnel. The port’s inaugural commercial consignment, carried by the vessel San Fernando, included nearly 1,900 containers from China, exemplifying how economic pragmatism has continued alongside heightened security sensitivities in critical sectors such as maritime infrastructure.
In a multipolar world, where competition and cooperation inevitably coexist, India’s task is not to choose between engagement and insulation, but to calibrate both with strategic clarity. The latest round of dialogue between Foreign Secretary Vikram Misri and Executive Vice Foreign Minister Ma Zhaoxu reaffirmed the importance of stabilising and rebuilding bilateral ties. India’s credibility as an emerging industrial power will rest on how effectively it structures these external linkages to strengthen domestic capabilities and convert existing interdependence into sustained technological depth and manufacturing resilience.
The author is a former Indian ambassador to the UAE.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.