India cannot afford to lose plot while chasing Chinese investment

India needs to redefine its objectives. Improving the country’s technological capabilities should be the focus of India’s FDI policies. Accordingly, its strategy towards China should rest on technological transfers and diffusion from Chinese FDI.

The idea is that the technological capabilities and management techniques of Chinese multinationals gradually leak out of Chinese firms and become common knowledge in the domestic Indian market. In other words, Indian firms could enjoy technological spillover benefits from incorporating foreign knowledge into their production processes without having to acquire it via a transaction.

For example, the presence and activities of Chinese firms in India could facilitate technological spillovers through imitation, whereby domestic Indian firms could reverse engineer technologies embodied in Chinese FDI. This could close the technological gap, putting domestic laggards onto an innovation trajectory. However, reverse engineering is only possible if the Indian workforce has the necessary skill set to make it happen.

India also needs to tap into the role that governments at the state and local levels can play in bringing along the development of the country’s infrastructure. While financial transfers and budgetary autonomy are indispensable factors, decentralisation that endorses adaptive government is also important to promoting good development outcomes.

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Sinking towns, terrified residents: the unintended consequences of India’s infrastructure drive

India’s short-sighted approach to Chinese FDI needs to go beyond extending a cautionary welcome. It needs to actively bargain for a higher share in Chinese multinationals’ portfolios. The bargaining chip here is a robust and resilient