Is India Weighing Opening Up Govt Contracts To Chinese Firms Following Five-Year Freeze?

Last Updated:January 08, 2026, 19:09 IST

The restrictions in question were implemented in July 2020, shortly after a lethal skirmish between Indian and Chinese troops in the Galwan Valley

The rationale for the proposed easing is rooted in economic necessity. Representational image

India’s Finance Ministry is reportedly finalising a proposal to scrap stringent restrictions that have largely barred Chinese companies from participating in government contracts for the past five years. This potential policy reversal, reported on Thursday by Reuters, signals a shift in New Delhi’s economic strategy as it seeks to normalise commercial ties with Beijing following a period of prolonged diplomatic and military frostiness. The move is viewed as a pragmatic response to mounting project delays and domestic equipment shortages that have hindered India’s infrastructure and energy ambitions.

The restrictions in question were implemented in July 2020, shortly after a lethal skirmish between Indian and Chinese troops in the Galwan Valley. Under an amendment to the General Financial Rules, the Indian government mandated that any bidder from a country sharing a land border with India must register with a designated committee and obtain both political and security clearances from the ministries of External and Home Affairs. While the order did not explicitly name China, the procedural hurdles effectively disqualified Chinese firms from public procurement tenders, which are estimated to be worth between $700 billion and $750 billion annually.

The rationale for the proposed easing is rooted in economic necessity. Various government departments, particularly those overseeing the power and heavy industry sectors, have reportedly flagged significant constraints. The power sector has been especially vocal, noting that curbs on Chinese imports have slowed the expansion of thermal power capacity, which India aims to increase to approximately 307 GW over the next decade. A high-level committee, which has included insights from former cabinet secretary Rajiv Gauba, has recommended a relaxation of these rules to ensure that critical national projects are not derailed by a lack of competitive bidding or specialised technology.

The news of the potential policy shift sent ripples through the Indian stock market on Thursday. Shares of major domestic capital goods and engineering firms, including Bharat Heavy Electricals Limited (BHEL), Larsen & Toubro (L&T), and Siemens, saw sharp declines as investors weighed the prospect of renewed competition from Chinese state-owned enterprises. These Indian firms had largely benefited from the protectionist measures over the last five years, securing a significant portion of government infrastructure projects in the absence of their Chinese counterparts.

While the Finance Ministry may be spearheading the proposal, the final decision rests with the Prime Minister’s Office. Officials have stressed that any opening will be calibrated and cautious, as security concerns regarding sensitive infrastructure remain a priority. Nevertheless, the move aligns with the broader diplomatic “thaw" observed throughout late 2024 and 2025, suggesting that New Delhi is increasingly willing to decouple certain economic engagements from its ongoing territorial disputes with Beijing to bolster national development.

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