India’s Finance Ministry is preparing to dismantle significant restrictions that have prevented Chinese companies from bidding on government contracts since 2020, according to sources familiar with the matter. The proposed policy shift signals a substantial warming of commercial relations between the two Asian powers following years of diplomatic tension.
The restrictions, originally implemented after deadly border clashes between Indian and Chinese troops, mandated that Chinese bidders undergo rigorous registration processes with a specialized government committee and obtain comprehensive political and security clearances. These measures effectively created a substantial barrier to entry, resulting in Chinese firms being excluded from government contracts collectively valued between $700 billion and $750 billion.
Two government officials, speaking on condition of anonymity, revealed that ministry officials are actively working to eliminate the registration requirements for bidders from nations sharing borders with India. The final decision rests with Prime Minister Narendra Modi’s office, which will evaluate the proposal’s broader implications.
The 2020 restrictions produced immediate tangible effects. China’s state-owned CRRC Corporation was disqualified from competing for a $216 million train manufacturing contract shortly after the rules were implemented. According to a 2024 Observer Research Foundation report, the value of new projects awarded to Chinese bidders plummeted 27% year-over-year to $1.67 billion in 2021.
The push for policy revision stems from multiple government departments experiencing significant project delays and equipment shortages directly attributable to the restrictions. Particularly affected is India’s power sector, where import constraints on Chinese equipment have hampered plans to expand thermal power capacity to approximately 307 gigawatts over the coming decade.
A high-level committee chaired by former Cabinet Secretary Rajiv Gauba has endorsed easing the restrictions, adding weight to the Finance Ministry’s proposal. The diplomatic context surrounding this potential policy shift includes Prime Minister Modi’s first visit to China in seven years, during which both nations committed to enhancing commercial cooperation. This rapprochement occurred against the backdrop of former U.S. President Donald Trump’s imposition of 50% punitive tariffs on Indian goods and warming relations between Washington and Pakistan.
Despite these positive developments, India maintains a cautious approach, with foreign direct investment restrictions on Chinese companies remaining firmly in place. The United States continues to send ambiguous signals regarding a potential Washington-New Delhi trade agreement, creating geopolitical conditions that experts suggest may facilitate improved India-China relations.