India opens the door to select investments from China, neighbors

Six years after imposing tighter scrutiny on foreign direct investment (FDI) from neighboring countries, India has eased some of those restrictions, allowing certain non-controlling minority investments without prior approval and setting a 60-day decision timeline for selected manufacturing proposals, according to a government release.

The government said the move is intended to ease funding constraints, accelerate manufacturing partnerships and boost domestic value addition while keeping Indian control intact in sensitive sectors.

Under the revised framework, investors from countries sharing a land border with India can invest through the automatic route if their stake is non-controlling and the beneficial ownership does not exceed 10%, subject to sectoral caps and other conditions.

For proposals involving manufacturing in capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer, the government has also promised a decision within 60 days. In each of those cases, majority shareholding and control must remain with resident Indian citizens or Indian entities owned and controlled by them, according to the statement.

The changes mark a calibrated rollback of Press Note 3, the April 2020 policy shift that required prior government approval for any investment from an entity in a country sharing a land border with India, or where the beneficial owner of the investment was situated in, or a citizen of, one of those countries.

New Delhi said at the time that the rule was needed to prevent “opportunistic takeovers” of Indian companies during the Covid-19 pandemic. While the language covered all land-bordering countries, the measure came to be seen chiefly as a clampdown on Chinese capital.

The backdrop was not just the pandemic but the sharp deterioration in India-China ties that followed the Galwan Valley clash in June 2020, when at least 20 Indian and four Chinese soldiers were killed in the worst border violence between the two countries in decades.

After that confrontation, India tightened scrutiny of Chinese investment, expanded restrictions on market access and banned scores of Chinese apps, with Reuters reporting that the app ban list eventually grew to 321.

What followed was a prolonged freeze on Chinese-linked capital and a wider hardening of economic ties. Major investment proposals faced delays or were blocked outright, including BYD’s planned $1 billion electric vehicle and battery investment with a local partner, which Reuters reported was rejected in 2023.

Industry groups and manufacturers increasingly argued that the regime had become a drag on sectors that still depended on Chinese equipment, components, technical expertise and upstream supply chains, particularly electronics and solar manufacturing.

Electronics makers, component suppliers, capital goods producers and solar manufacturers stand to benefit from faster approvals and clearer rules, especially where Indian companies need minority foreign capital, machinery partnerships or technology tie-ups to expand domestic production.

“We welcome the government’s decision to bring greater clarity and timelines to the FDI approval process for investments from land-bordering countries. The 60-day decision window is a step toward improving ease of doing business and should encourage greater domestic value addition in the electronics manufacturing supply chain,” India Cellular and Electronics Association (ICEA) chairman Pankaj Mohindroo said.

The reform will help companies move faster on technology partnerships, expand manufacturing in India and integrate more deeply with global value chains.

“Overall, this is a progressive policy measure that strengthens India’s position as a trusted and competitive destination for advanced manufacturing and global investment,” Mohindroo added.

The government said the changes would help manufacturing in electronic components, capital goods and solar cells, while Reuters said the easing was driven in part by concerns over capital and technology constraints under the old regime.

Startups and deep-tech firms could also see some relief. The government statement said the old treatment of investors with non-strategic and non-controlling interests had hurt investment flows from global funds, including private equity and venture capital vehicles.

By carving out room for small, non-controlling investments to proceed without prior approval, the government appears to be trying to remove a bottleneck that had complicated fundraising for Indian companies backed by offshore funds with some exposure to Chinese capital.

The policy shift also fits into a broader, cautious thaw in commercial ties between New Delhi and Beijing.

Reuters reported last year that government think tank NITI Aayog had recommended easing investment rules for Chinese firms, arguing that the post-2020 regime had choked capital inflows and slowed investment.

More recently, India had moved to streamline business visas for Chinese engineers and technicians, whose absence had disrupted installation, commissioning and training work in sectors such as electronics and solar power.