India has relaxed its foreign direct investment regulations for companies connected to China and other neighbouring nations that share land borders with the country, allowing certain investments to proceed without prior government approval. The revised framework applies to investors from China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. The decision was cleared by the Union Cabinet led by Prime Minister Narendra Modi as part of a broader policy recalibration aimed at improving investment flows while retaining safeguards.
Under the updated norms, overseas investors whose beneficial ownership from these neighbouring countries does not exceed ten percent will now be permitted to invest through the automatic route, provided sectoral limits and regulatory conditions are met. Previously, even minimal shareholding from such jurisdictions required mandatory government clearance. The reform modifies the provisions introduced under Press Note 3 of 2020, which had imposed stricter scrutiny during the pandemic to prevent opportunistic acquisitions of Indian firms.
The revised policy introduces a more precise definition of beneficial ownership, referring to the ultimate individual or entity that controls or derives economic benefit from an investment. The definition aligns with standards set under India’s Prevention of Money Laundering Rules. Investments involving non-controlling stakes within the ten percent threshold can proceed automatically, although recipient companies must disclose full ownership details to the Department for Promotion of Industry and Internal Trade.
The government has also streamlined approval timelines for investments that still require scrutiny, particularly in strategic manufacturing segments. Proposals from these neighbouring countries in sectors such as capital goods, electronic capital goods, electronic components, polysilicon production and ingot-wafer manufacturing will now be processed within sixty days. Officials indicated that quicker clearances are intended to accelerate technology partnerships, joint ventures and integration into global supply chains. Even in approved cases, majority ownership and effective control must remain with resident Indian citizens or Indian-owned entities.
Authorities said the earlier blanket restrictions had unintended consequences for global private equity and venture capital funds, where small passive holdings by investors from neighbouring countries often triggered approval requirements. The easing aims to attract foreign capital, strengthen manufacturing capacity and facilitate technology collaboration while supporting India’s ease-of-doing-business objectives and the Atmanirbhar Bharat industrial strategy.
India had tightened FDI rules in April 2020 after border tensions with China escalated following the Galwan Valley clash. At the time, any investment originating from or beneficially owned by entities in neighbouring countries required government approval, a safeguard designed to prevent distressed asset acquisitions during the economic disruption caused by the pandemic.
The policy shift has drawn criticism from some strategic analysts who view it as a rollback of earlier safeguards. Strategic affairs expert Brahma Chellaney argued that the easing primarily benefits China and reflects a broader effort to normalise economic engagement. He cautioned that increased Chinese investment in sensitive sectors such as power infrastructure and electric vehicle supply chains could create strategic vulnerabilities and economic leverage.
Critics also noted that the move follows several steps indicating a gradual thaw in relations, including relaxed visa issuance for Chinese nationals, the resumption of direct passenger flights after a prolonged suspension, and the reopening of select border trade routes. Concerns have been raised that deeper economic integration may increase dependence on Chinese supply chains and widen existing trade imbalances.
Trade data underscores the asymmetry in economic ties. China remains India’s second-largest trading partner, with bilateral trade reaching approximately 127.7 billion dollars in the 2024–25 period. Imports from China stood at about 113.45 billion dollars, while exports were roughly 14.25 billion dollars, leaving a trade deficit exceeding 99 billion dollars. In the current financial year through January, exports rose to about 15.88 billion dollars while imports reached 108.18 billion dollars, sustaining a large deficit.
Despite strong trade volumes, China’s share in India’s cumulative foreign direct investment remains relatively small. Official figures indicate that China ranks twenty-third among investing countries, accounting for roughly 0.32 percent of total FDI inflows, equivalent to about 2.51 billion dollars between April 2000 and December 2025.
