India is cautiously re-engaging with Chinese suppliers, easing restrictions on equipment imports for critical power and coal projects. The move, a significant shift from the stringent curbs imposed after a deadly 2020 border clash, comes as New Delhi grapples with project delays and mounting shortages in key infrastructure sectors.
The initial easing allows state-run power and coal companies to procure specific equipment from China without requiring prior government approval. According to two government officials cited by Reuters, a power-transmission component is already being sourced from Chinese manufacturers under the new guidelines. A similar, time-bound exemption for key equipment used in the coal sector is currently under consideration.
This represents the first substantial rollback of the five-year-old restrictions that effectively barred Chinese firms from participating in India’s substantial government contract market, estimated at between $700 billion and $750 billion. The previous policy required Chinese bidders to register with a government panel and obtain political and security clearances – a process that significantly hampered their ability to compete for contracts.
Navigating Supply Chain Constraints and Project Delays
The decision to relax import restrictions stems from growing concerns about the impact of the previous policy on India’s ambitious infrastructure development plans. The officials explained that blocking Chinese imports was hindering India’s manufacturing capability and contributing to delays in crucial projects. The exemption was granted in the “national interest,” one official stated.
The move follows repeated appeals from government departments struggling with shortages and project timelines under the existing restrictions. While a full reopening of procurement to Chinese firms isn’t currently planned, India is considering a case-by-case approach for critical equipment imports. This calibrated strategy aims to address immediate needs while maintaining a degree of caution regarding national security and the support of domestic manufacturers.
The impact of the restrictions on project execution has been considerable. A 2024 report by the Observer Research Foundation found that new project awards to Chinese bidders fell by 27 percent to $1.67 billion in 2021 compared to the previous year. This slowdown occurred at a time when India is striving to add 500 GW of non-fossil fuel capacity by 2030, a target facing challenges due to execution delays and transmission bottlenecks.
Specifically, the power transmission sector is facing a projected shortfall of approximately 40 percent in transformers and reactors over the next three years, according to one of the government officials. This shortage underscores the urgency of addressing supply chain vulnerabilities and ensuring the timely completion of critical infrastructure projects.
Rebuilding Commercial Ties Amidst Geopolitical Shifts
The easing of restrictions coincides with broader efforts to rebuild commercial ties between India, and China. This shift comes after a period of strained relations following the 2020 border clash, which led to a slowdown in the exchange of capital, technology, and talent between the two countries.
However, the process is expected to be carefully managed. Any time-bound exemptions will be subject to consultations with relevant ministries and security agencies, acknowledging concerns that lower bids from Chinese companies could potentially undercut domestic firms. The finance, external affairs, industries, home, power, and coal ministries did not respond to requests for comment from Reuters regarding the policy shift.
The move also occurs against the backdrop of evolving global trade dynamics. The Reuters report notes that the easing of restrictions comes after former US President Donald Trump imposed a 50 percent tariff on Indian goods, potentially creating a more favorable environment for diversifying India’s supply chains.
Implications for the Indian Power Sector
The immediate beneficiaries of this policy change are likely to be Indian state-run power and coal companies facing project delays and equipment shortages. The ability to source critical components from China, even on a limited basis, could help accelerate project timelines and alleviate supply chain pressures.
However, the long-term implications are more complex. Domestic manufacturers may face increased competition, potentially impacting their market share and profitability. The government will need to carefully balance the need for affordable and readily available equipment with the goal of fostering a robust domestic manufacturing base.
The inter-ministerial panel approving future exemptions will play a crucial role in navigating this delicate balance. The panel’s decisions will likely be guided by a combination of factors, including project criticality, supply chain vulnerabilities, and the potential impact on domestic industries. A formal order outlining the details of the exemption is expected soon, providing further clarity on the scope and duration of the policy change.
, Reuters reported that India’s private coal power producers had already urged the government to allow equipment imports from China, citing the limitations of domestic resources. This earlier call for easing restrictions highlights the growing pressure on the government to address supply chain challenges in the energy sector.
, Reuters reported that India was examining broader relaxations on Chinese bidders for government contracts as border tensions eased. This suggests a more comprehensive review of the restrictions is underway, potentially paving the way for further adjustments in the future.
