Govt relaxes FDI rules for China, other neighbouring countries

The Union government has eased foreign direct investment (FDI) norms for countries sharing land borders with India, including China, by amending the provisions introduced under Press Note 3 of 2020, according to government sources.

The decision was taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi, and is expected to simplify investment procedures while continuing oversight in sensitive sectors.

Press Note 3 was introduced in April 2020 during the COVID-19 pandemic to prevent what the government described as “opportunistic takeovers” of Indian companies when asset valuations were low. Under that rule, any investment from countries sharing a land border with India had to obtain mandatory government approval.

The countries covered under the rule include China, Bangladesh, Pakistan, Nepal, Bhutan, Myanmar, and Afghanistan.

Officials said the revised framework aims to remove procedural hurdles that were affecting investment inflows, particularly in cases where investors from neighbouring countries hold only minority or non-strategic stakes through global private equity or venture capital funds.

The government expects the changes to support investments in emerging manufacturing sectors such as electronic components, capital goods and solar manufacturing. Authorities believe the policy shift could help increase foreign investment, bring in new technologies and strengthen India’s integration with global supply chains.

Although restrictions are being eased, safeguards will remain in place. Officials said majority ownership and control of Indian companies in certain cases must continue to remain with resident Indian entities to address national security concerns.

India’s economic ties with China have remained significant despite political tensions following the 2020 Galwan Valley clash. China is currently one of India’s largest trading partners, even though Chinese FDI accounts for a relatively small share of total foreign investment in the country.

The move is expected to encourage greater foreign capital inflows while balancing economic interests with strategic and security considerations.