The Economic Reasons behind India-China Rapprochement not Enough for a Turnaround

China-India relations have never been easy especially since the 2020 military standoff in the Himalayan border. This sudden severe disruption in political relations had relevant economic consequences for China as many of its companies, especially e-platforms – had to abandon India. And yet, India’s economic dependence on China, especially in terms of imports, has done nothing but increase since.Given that the Indian economy is decelerating at a more difficult time for Prime Minister Modi, who governs in a coalition, China could offer a partial solution to India’s economic deceleration by investing in India’s manufacturing sector and creating jobs in the formal economy. Against such backdrop, Modi-Xi “rapprochement” Xi-Modi after their encounter at the BRICS summit last October is a very important signal of a potential improvement in relations.In this note, we argue that India will be willing to accept targeted investment from China, but relations are unlikely to be fully normalized. There are three main reasons for this. Firstly, the Indian army remains cautious as to the situation at the border but also more generally in terms of security risks relating to China directly or indirectly. Secondly, Trump will exert pressure on Modi to remain well anchored in the Indo-Pacific strategy and avoid increased economic dependence on China. Thirdly, India’s public opinion is still very negative on China and the BRI. In the short run, Modi’s potential visit to China for the SCO summit later this year is clearly an important point to watch. If it finally happens, economic cooperation could be enhanced but always in a targeted way, mostly through Chinese investment in India’s manufacturing sector. This development needs to be followed against the backdrop of Trump’s pressure on India, whether negative through tariffs to be potentially imposed on Indian exports to the US, but also positive, with Trump’s potential visit to India for the QUAD summit later this year.In the long run, given the growth differential clearly in favor of India for the next decades to come, China’s upper hand when it comes to economic relations might decline slowly but steadily. This however, will depend on how much India has been able to reduce its economic dependence on China by pushing strategic autonomy or attracting FDI from the West.All in all, India’s challenges regarding China, namely a still militarized border, an increasingly asymmetric economic dependence and China’s growing leadership in the Global South make a “rapprochement” between India and China only tactically possible but surely fragile and unlikely in the medium run.