India May Ease Curbs on Chinese Investments to Boost FDI and Trade

India is reportedly preparing to relax restrictions on Chinese investments in selected sectors as part of a broader strategy to revive capital inflows and support its economic ambitions, as per the Mint report.

India Targets Investment Boost Amid Trade Concerns

In efforts to restore economic momentum amid global uncertainties, India may allow Chinese companies to invest in non-sensitive sectors such as renewable energy, manufacturing, and consumer goods. Although Press Note 3 will remain, which mandates government approval for investments from neighbouring countries, a fast-track mechanism is being explored for identified sectors. 

Sensitive areas like defence, telecom, and core digital infrastructure will remain out of bounds for Chinese capital.

Trade Imbalance and Import Dependency

Despite diplomatic strains, India’s trade with China is booming. Imports rose from $94.57 billion in FY22 to $113.45 billion in FY25. However, exports dropped from $21.26 billion to $14.25 billion in the same period. India remains heavily reliant on China for key inputs such as pharmaceutical ingredients and electronic components. From April to July 2025, imports increased by 13.1% to $40.66 billion, while exports grew by 20% to $5.76 billion.

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Strategic Motives Behind the Policy Shift

China’s stronghold on resources such as rare earth magnets and tunnel-boring machinery has compounded delays in Indian infrastructure projects. Additionally, the withdrawal of Chinese skilled workers has disrupted operations. India’s move to welcome more Chinese investment is seen as a step to ensure industrial stability while addressing vulnerabilities.

FDI Trends and Diplomatic Push

India attracted $81.04 billion in FDI during FY25, a 14% rise over the previous year. However, inflows had peaked at $84.83 billion in FY22 and then dipped over the next 2 years. The government now aims to hit $100 billion in FDI in FY26. This policy rethink coincides with the cancellation of India-US trade talks and the reinstatement of Chinese tourist visas and direct flights.

Conclusion

India’s proposed easing of curbs on Chinese investments marks a calculated attempt to revive dwindling capital inflows and de-risk supply chains. With bilateral trade surging and domestic manufacturing priorities rising, targeted FDI inflows from China could play a critical role in India’s economic trajectory towards 2047.

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