Approach:

Introduction: Show how India changed its economic policies post-Galwan Crisis.

Body: List the different types of foreign trade and investment norms that can be used to regulate and balance economic relations between India and China. Evaluate the effectiveness of these norms in regulating and balancing economic relations between India and China during times of political tension.

Conclusion: Conclude by talking about the complex bilateral relation between India and China and showing that trade and investment is only a part of it. So more need to be done to create balance.

Answer:

The economic relationship between India and China, marked by significant trade volume and a trade deficit in favour of China, is influenced by complex political tensions between the two nations. The escalation of political tensions post-Galwan crisis has led to changes in India's foreign direct investment (FDI) policy, requiring prior government approval for investments from China, even in sectors that previously allowed automatic clearance. These measures aim to protect domestic firms from opportunistic takeovers amidst the COVID-19 pandemic.

Some of the different types of foreign trade and investment norms that can be used are- Tariffs, Quotas, Subsidies, Non-tariff barriers, and Foreign direct investment (FDI) policy.  

Changing foreign trade and investment norms is an effective tool for regulating and balancing economic relations during times of political tension:

1. Trade restrictions: imposition of import tariffs or quotas on Chinese goods, which would make them more expensive for Indian consumers and businesses. This could hurt Chinese exports and reduce China's economic leverage over India. India imposed tariffs on Chinese solar panels and steel products in 2018 to counter dumping and subsidisation by China.
2. Investment restrictions: making it more difficult for Chinese companies to invest in India, or even banning them altogether. This would limit China's ability to expand its economic footprint in India and gain access to Indian markets and technology. India revised its FDI policy in 2020 to require government approval for any investment from countries that share a land border with India, including China.
3. Technology controls: restricting the export of sensitive technologies to China would make it more difficult for China to develop its own advanced industries. This could also have a knock-on effect on China's economic growth. In 2020, India banned 59 Chinese apps, citing national security concerns.
4. Financial sanctions: imposing financial sanctions on Chinese banks and companies would make it more difficult for them to raise capital and conduct business. This could damage China's financial system and economy.
5. Customs checks: increasing customs checks on Chinese goods would slow down the flow of trade and make it more expensive for Chinese companies to do business in India. This could also deter Chinese investment in India. India imposed quotas on Chinese toys and fireworks in 2016 to ensure quality and safety standards.
6. Standards and regulations: raising its standards and regulations for imported goods and services, which would make it more difficult for Chinese companies to meet them. This could make Chinese goods and services less competitive in the Indian market.

Changing foreign trade and investment norms may not be sufficient for regulating and balancing economic relations as:

1. China is India's largest trading partner, accounting for about 14% of India's total imports and 5% of its total exports in 2020. Any disruption in trade would hurt India's economy more than China's, as India relies on China for many essential goods.
2. China is a major investor in India. China was the third largest investor in India, with a cumulative investment of over $25 billion in 2021. Any attempt by India to restrict Chinese investment would likely discourage other investors from investing in India.
3. China is a major supplier of critical goods to India. China is a major supplier of a wide range of critical goods to India, including electronics, machinery, and raw materials. Any attempt by India to restrict imports from China would likely disrupt India's supply chains and lead to higher prices for consumers.

India and China have a complex and multifaceted relationship that goes beyond trade and investment. They share a long and disputed border, have common interests in regional stability and security, and cooperate on global issues such as climate change, health, and terrorism. Trade and investment norms cannot address these issues effectively and may even worsen them by escalating tensions and mistrust. There are a number of factors that could shape the future of this relationship, like the management of political tensions, the potential for economic cooperation, and the need for trade diversification.