Ice melts at the border, now focus on trade! Modi government plans to relax FDI rules for China

New Delhi (The Uttam Hindu): Relations between India and China appear to be gradually improving, with reduced tension along the border now opening space for economic engagement. According to media reports, the Government of India is actively considering easing rules related to Chinese Foreign Direct Investment (FDI).

In April 2020, strict restrictions were imposed on investments from neighbouring countries through Press Note 3, making prior government approval mandatory. These rules were introduced amid heightened border tensions to prevent opportunistic takeovers of Indian companies. Now, the government is exploring conditional relaxations, especially to support domestic manufacturing and strengthen the Make in India programme.

Small investments may get automatic approval

The government is examining whether small-scale Chinese investments can be allowed through the automatic route. A minimum threshold, or “de minimis” limit, is under discussion. Investments below this defined level may not require lengthy approval procedures. However, officials have clarified that Press Note 3 will not be withdrawn entirely and core safeguards will remain in place.

Up to 26% stake, control to remain with Indian partners

Indian industry bodies, particularly from the electronics sector, have urged the government to allow joint ventures with Chinese firms. They argue that China’s advanced supply chains and technology are critical for scaling electronics manufacturing in India. A proposal under consideration would permit Chinese companies to hold up to 26% equity in joint ventures, ensuring operational and strategic control stays with Indian entities.

Boost for Make in India through controlled Chinese investment

Members of the Prime Minister’s economic advisory circle have highlighted that tariffs alone are not a long-term solution. Allowing regulated Chinese investment could help build domestic manufacturing capacity, reduce import dependence, and create jobs within India. For China, slowing economic growth and restrictions in Western markets are pushing companies to look at India as a stable and fast-growing destination.

National security safeguards to remain intact

The government has reiterated that national security will not be compromised under any circumstances. Investments linked to sensitive sectors or entities associated with the Chinese military or Communist Party will continue to face strict scrutiny. The Ministry of Home Affairs and Ministry of External Affairs will continue to closely examine all strategic investment proposals.