New Delhi, Aug 30 (IANS) India has succeeded in rebalancing its economic partnership with both the US and China during 2026 with a negotiated settlement of the tariff dispute that escalated in 2025 with Washington and a calibrated easing of restrictions on Chinese capital for the first time since the border clashes in 2020, according to an article.
The US relationship settled first.
On February 2, Prime Minister Narendra Modi and President Donald Trump agreed, over the phone, to bring the reciprocal tariff on Indian goods down to 18 per cent from 25 per cent, while dropping the additional 25 per cent punitive duty tied to Russian oil purchases altogether. Both governments have publicly reaffirmed that the India arrangement would hold regardless of the US Supreme Court judgment on tariffs.
Washington has since layered on separate Section 301 duties of 10 per cent, though roughly 45 per cent of Indian exports remain outside their scope, and quartz surface products have been hit with safeguard tariffs running as high as 55 per cent. The net effect is a tariff regime that is lower and more predictable than it was a year ago, states the article by Alok Kumar Kanojia in Geopolitical Monitor.
On March 10, the Union Cabinet amended Press Note 3, the 2020 rule that had routed all investment from land-bordering countries through a mandatory government-approval process. The amendment did not reopen the door to direct Chinese investment, which still requires prior clearance. What it did was create an automatic route for entities with non-controlling Chinese beneficial ownership below 10 per cent, along with a 60-day approval timeline for select manufacturing sectors such as capital goods, electronic components, and solar inputs like polysilicon and ingot-wafer.
By late August, the government reported roughly Rs 4,896 crore in FDI across 29 projects had come through under the eased norms, spanning IT, pharmaceuticals, data centres, and manufacturing. It is a narrow opening rather than a wide one, but is accompanied with Beijing lifting export curbs on rare earth magnets, fertilisers, and tunnel boring machines in August last year, and border talks have picked up pace through 2026, culminating this week in National Security Advisor Ajit Doval’s visit to Beijing for the first Special Representatives dialogue on the boundary dispute in five years, ahead of a BRICS summit New Delhi is hosting next month, the article noted.
Read separately, these look like two distinct diplomatic stories: a trade truce with Washington, a cautious opening toward Beijing. Read together, they describe a country trying to diversify who it depends on for capital and demand, at exactly the moment its growth forecasts are being revised downward.
The UN’s mid-year outlook put 2026 growth at 6.6 per cent, down from an estimated 7.4 per cent the year before, pointing to geopolitical tensions and policy uncertainty as drags on the global environment India operates in. S&P had been more optimistic earlier in the year, forecasting 7.1 per cent for FY27 on the back of steady exports and a recovering investment cycle. Both forecasts assume that India keeps attracting the kind of capital that stabilises its external account, which is where the tariff and Press Note 3 decisions start to matter for reasons that go beyond trade policy narrowly defined.
Overseas investors put a record $4.2 billion into Indian government bonds in June, the strongest monthly inflow since August 2024, at a time when inflation had fallen to 2.1 per cent, and the RBI Governor was describing the domestic setup as a “Goldilocks” phase.
That kind of debt inflow is sensitive to exactly the sort of external uncertainty the tariff dispute had been generating through most of last year. A tariff regime that is lower and, more importantly, less prone to sudden escalation removes one source of currency and bond-market volatility that the RBI has had to price into its policy stance. The Press Note 3 relaxation works on a different but related channel: multinational manufacturers with minority Chinese ownership, who had been effectively locked out of the automatic investment route regardless of how small the Chinese stake was, can now bring capital into India’s manufacturing base without a discretionary approval process that could take the better part of a year. For firms trying to build supply chains that sit outside China but still draw on Chinese components, equipment, or minority capital, that removes a real bottleneck.
Whether this rebalancing holds will depend on things well outside India’s control, from the durability of the Section 301 tariffs to whether the border talks ahead of the BRICS summit produce anything beyond another round of communiqués.
For a country like India whose growth model still leans heavily on external capital and export demand, having two live channels instead of one, each with its own risks and its own leverage, is itself a meaningful shift, the article added.
–IANS
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