As India recalibrates its external posture in an increasingly fragmented world, the nation must ask itself: Can economic engagement with China serve national security objectives rather than compromise them? Amid renewed global trade tensions from Trump-era tariffs to post-pandemic protectionism, the idea of strengthening commercial ties with China may appear politically unpalatable. Yet, India’s two-front security dilemma demands fresh thinking. Military deterrence has not shifted the strategic axis between China and Pakistan. A complementary approach rooted in calibrated economic statecraft could prove more consequential.
India’s strategic challenge is clear. The deepening convergence between China and Pakistan manifest in military cooperation, joint exercises, arms transfers and the expansive China–Pakistan Economic Corridor has hardened into a structural alignment. Traditional tools such as forward deployment, modernization and deterrence have not eroded this axis. Rather than persist with only reactive strategies, India must consider how selective economic engagement might offer new leverage.
China’s internal economic transition presents a unique window of opportunity. With rising wages, an aging workforce and geopolitical decoupling accelerating, Beijing is steering its economy from an export-led growth model to a more consumption-driven, innovation-oriented trajectory. This shift acknowledged by the International Monetary Fund (IMF) and other multilateral institutions requires China to secure diversified and politically stable sources of high-quality imports.
Strategic economic engagement, when embedded in enforceable safeguards, becomes a tool and not a concession.
This is where India’s comparative advantage intersects with China’s structural needs. India can selectively offer trade in non-sensitive, high-growth sectors such as pharmaceuticals and processed agri-products under a strategic export access plan. Doing so would create mutual economic benefit while subtly reducing China’s dependence on Pakistan as a default partner in South Asia.
But this approach is not about naively embracing China’s market. It is about influencing China’s incentives through bounded interdependence. Strategic economic engagement, when embedded in enforceable safeguards, becomes a tool and not a concession. For instance, India could implement a “red lines framework” that halts engagement in response to any coercive behaviour along the Line of Actual Control or in cyberspace. Similarly, a strategic contingency planning group within the National Security Council Secretariat should track dependencies and prepare fallback supply chains in key sectors such as active pharmaceutical ingredients, semiconductors and rare earths.
Moreover, India’s engagement must be complemented by institutional infrastructure to support Indian firms navigating China’s regulatory terrain. Export support cells in Shanghai and Shenzhen, a China market access desk under Invest India and expanded credit guarantees under the Export-Import Bank of India can help enterprises operate with confidence and resilience. Trade intelligence, through a proposed Indo-Pacific competitiveness observatory housed under either the Ministry of External Affairs’ Economic Diplomacy Division or a partner think tank, can keep policy makers and exporters ahead of the curve on sectoral demand shifts in China.
The multilateral arena is equally critical. India should use its voice in the IMF, the World Bank, the Asian Infrastructure Investment Bank and the New Development Bank to condition development finance on merit and transparency, thereby limiting China’s ability to use multilateralism to bail out allies such as Pakistan. A BRICS+ joint consumption and innovation initiative co-led by India and China could foster cooperation in pharmaceuticals, processed agricultural products and renewable technologies, while ensuring India’s inclusion in emerging consumption corridors.
At the Group of Twenty, India must champion an inclusive trade facilitation charter to ensure that middle-income economies are not structurally disadvantaged in accessing China’s evolving consumer market. Simultaneously, reviving and restructuring the dormant India-China Strategic Economic Dialogue and transforming it into a high-level economic risk and opportunity dialogue with China could provide a stable platform for engagement, separate from high-voltage political disputes.
None of this implies ignoring the risks of engagement. Rather, it suggests a more sophisticated doctrine — one that combines strategic clarity with economic pragmatism. As the global order tilts toward multipolarity, India must move from being a reactive balancer to a proactive shaper. Trade and diplomacy, when strategically aligned, can deliver what coercion alone cannot: durable influence.
If India is to secure regional stability and expand its strategic autonomy, it must recognize that economics is not peripheral to statecraft — it is central. And in the geoeconomic contest with China, a well-crafted engagement strategy may well be the strongest deterrent of all.
