Cabinet Eases FDI Rules For Small Investments From China, Other Neighbouring Countries

The Union Cabinet has eased foreign direct investment (FDI) rules for small-ticket investments from countries that share land borders with India, including China, according to people familiar with the development.

The decision was taken during a Cabinet meeting chaired by Prime Minister Narendra Modi and involves amendments to Press Note 3 of 2020, which had earlier mandated government approval for investments from neighbouring countries in any sector.

The revised framework is expected to allow certain smaller investments to move through the automatic approval route, signalling a calibrated relaxation of the restrictions imposed following geopolitical tensions in 2020.

Amendment To Press Note 3 Signals Policy Shift

Press Note 3, introduced in April 2020, required government approval for any investment in Indian companies where the beneficial owner was located in countries sharing land borders with India. The rule applied to investors from China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.

The measure was widely seen as a safeguard to prevent opportunistic acquisitions of Indian companies during the economic slowdown triggered by the COVID-19 pandemic.

With the latest amendment, the government appears to be creating space for smaller FDI inflows to proceed without mandatory approval, though detailed guidelines on thresholds and sectors are expected to emerge in subsequent notifications.

China’s Share in India’s FDI Remains Limited

Despite the strict approval regime introduced in 2020, China’s direct investment in India has remained relatively small. According to government data, China ranked 23rd among FDI investors, accounting for only 0.32% of total equity inflows, equivalent to about $2.51 billion between April 2000 and December 2025.

The restrictions came after relations between India and China deteriorated sharply following the Galwan Valley clash in June 2020, one of the most serious military confrontations between the two countries in decades.

Following the conflict, India also banned more than 200 Chinese mobile applications, including TikTok, WeChat, and UC Browser.

Trade Ties Continue To Expand

While FDI from China has remained modest, trade between the two countries has expanded significantly in recent years.

China has emerged as India’s second-largest trading partner, with imports continuing to outpace exports. In the financial year 2024-25, India’s exports to China declined 14.5% to $14.25 billion, while imports rose 11.52% to $113.45 billion.

As a result, the trade deficit widened to $99.2 billion, compared with $85 billion in the previous year.

Read more: India Rations Natural Gas as Hormuz Disruptions Trigger Supply Crunch.

Conclusion

The easing of FDI restrictions under Press Note 3 suggests that India is adopting a more calibrated approach toward investment from neighbouring countries, balancing national security considerations with the need to attract capital.

While the move does not represent a full rollback of the post-2020 safeguards, it indicates a gradual reopening for smaller investments, particularly as India seeks to strengthen domestic manufacturing and technology ecosystems amid shifting global supply chains.

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