American companies looking to reduce their reliance on China and resort to Indian companies to source goods are facing a substantial hurdle. 

United States policymakers' strategy of "de-risking" supply chains is faced with a loophole that is crushing such efforts. According to experts, cited by The Washington Post, Indian companies are only assembling Chinese imports into final products. 

Sirparana Pathak, an associate professor at Jindal University, said that if China remains a third party for the sourcing of components assembled in India, "de-risking is not going to happen for any country coming in and producing in India."

The strategy to look for alternative sources of products, after companies faced difficulties due to Washington's increased economic pressure on China and the state of supply chains during COVID-19, has been employed by the US in the hope of circumventing such challenges.

Consequently, and due to India's inability to produce the majority of the necessary components at competitive prices, India's imports from China grew to make up a third of Indian imports in key industries. 

This includes electronics, renewable energy, and pharmaceuticals, according to the Global Trade Research Initiative (GTRI). 

Read more: China calls on countries to 'oppose decoupling' amid economic pressure

Senior Biden officials believe cutting out Chinese inputs is unrealistic

Senior Biden administration officials have acknowledged the current impracticality of excluding Chinese inputs from American supply chains. One official, speaking anonymously, told WaPo, "To effectively diversify, the first step is to get a foothold in the parts of this supply chain where you can diversify today. And then from there, you can grow upstream."

The official highlighted the challenge of Chinese components in Indian-made solar panels, noting that while the effort to diversify is underway, the process is in its early stages. The official emphasized the need for a gradual approach, recognizing that over-reliance on any single source for the clean-energy sector is unsustainable and requires a collective effort to mitigate risks.

Although India has been shifting to other suppliers, it remains dependent on Chinese expertise for manufacturing components. Indian industry representatives are advocating for relaxed visa restrictions for Chinese technicians to aid in producing smartphones, textiles, and other goods, even though the two countries have faced rocky ties in the past.

Economic adviser V. Anantha Nageswaran has suggested easing restrictions on Chinese investments to enhance Indian manufacturing and integrate more deeply into the global supply chain.

Read more: West's economic de-risking a 'false proposition': Chinese PM