India-China Relations Witness Tentative Thaw Amid Push for Economic Growth: FM Sitharaman

In a significant and nuanced commentary on evolving Indo-China relations, Finance Minister Nirmala Sitharaman stated that both nations are beginning to move toward renewed economic access and dialogue, but with a clear caveat: caution must accompany this warming trend. Her remarks came during the launch of the book A World in Flux: India’s Economic Priorities, where she offered insights into India’s macroeconomic direction and the recalibration of its global partnerships.

A Delicate Rebalancing with China

Speaking on recent developments, Sitharaman noted that there has been mutual interest from both India and China in resuming engagement, particularly in trade and investment. This shift follows the recent easing of visa restrictions and renewed diplomatic visits, including a notable one by External Affairs Minister S. Jaishankar to Beijing. However, she was clear that such steps, while potentially beneficial to the economy, must be approached with prudence.

“There is something, some kind of a beginning… But it might help the economy; however, a sense of caution would have to be built in,” she remarked.

This shift is particularly noteworthy in the context of the restrictions under Press Note 3 issued in April 2020, which mandated prior government approval for investments from countries sharing a land border with India, a move largely seen as a curb on Chinese capital inflow following the Galwan Valley clash and amid pandemic-era vulnerabilities. The policy had stymied several projects, including in strategic sectors like renewable energy.

With thawing diplomatic ties and renewed Chinese interest, routed through the Ministry of External Affairs, there is cautious optimism about potential trade and investment openings, though Sitharaman emphasised that geopolitical sensitivities remain very much in play.

Growth as a Central Mandate

Beyond the China equation, Sitharaman reiterated that economic growth remains the foremost priority for India. “Growth is the topmost priority,” she affirmed, adding that job creation and value addition must go hand-in-hand with the overall development narrative.

The Indian economy expanded at 6.5% in FY25, its slowest pace in four years, following a robust 9.2% growth in FY24. For FY26, the Economic Survey has forecast GDP growth in the range of 6.3–6.8%, while the Reserve Bank of India has trimmed its estimate slightly to 6.5%, reflecting global uncertainties and domestic challenges.

The Finance Minister stressed that in a rapidly shifting global landscape, India must remain both resilient and dynamic, ensuring that its growth is inclusive and aligned with aspirational demographics.

Reimagining Global Roles and Institutions

Sitharaman also pointed to India’s evolving stance on the global stage, particularly in redefining its role within the Global South and contributing to the reform of international institutions.

“It’s not just about occupying leadership positions, but about shaping the institutions that will govern us for the next hundred years,” she said, signalling India’s intent to participate more assertively in multilateral fora and global economic policymaking.

Attracting Investment with Friendly FDI Policies

To realise these ambitions, she emphasised the need for a business-friendly and inviting foreign direct investment (FDI) environment. “We need to make sure the FDI policy is attractive, and that more and more investment comes into India,” she asserted. This aligns with the government’s broader goal to bolster the domestic manufacturing ecosystem under initiatives like Make in India and PLI (Production Linked Incentives).

In doing so, Sitharaman acknowledged the balancing act required, managing fiscal prudence while ensuring adequate support for growth sectors and underrepresented communities.

Bilateral Trade Over Multilateralism?

On trade, Sitharaman noted a global trend toward prioritising bilateral over multilateral agreements. While she refrained from taking a definitive stance, she cited the slew of recent Free Trade Agreements (FTAs) India has inked, including with Australia, the UAE, the EFTA bloc, and the UK. Negotiations with the US and the EU are also progressing.

This signals India’s tactical pivot toward targeted trade alignments, potentially offering greater flexibility and strategic depth amid a fragmented global trade environment.

A Watchful Yet Open Future

As India steps into a complex global arena, its approach appears to blend assertiveness with caution. Whether in recalibrating ties with China, redefining its global posture, or driving domestic economic revival, the government’s agenda is clear: maintain momentum, create value, and safeguard sovereignty.

Finance Minister Sitharaman’s remarks encapsulate a moment of transition, one in which India is increasingly willing to engage, but never without scrutiny