India Relaxes FDI Restrictions for China, Other Neighbouring Countries Under Press Note 3

The Union Government has approved changes to the Foreign Direct Investment (FDI) framework under Press Note 3, allowing certain global investors with minor shareholding from China or other neighbouring countries to invest through the automatic route, as per news reports. 

Limited Relaxation Under FDI Rules 

Under the revised rule, overseas entities with beneficial ownership of up to 10% from countries sharing land borders with India may invest without prior government approval if the holding is non-controlling. The investment will still be subject to sectoral limits under the existing FDI policy. 

However, companies that are directly incorporated in China, Hong Kong, or other land-bordering nations will continue to require prior approval before investing in India. 

Ownership Structure and Control Conditions 

As per the reports, officials from the Department for Promotion of Industry and Internal Trade (DPIIT) said the relaxation applies only to investors located outside land border countries. 

DPIIT Joint Secretary Jai Prakash Shivahare said that the restrictions introduced under Press Note 3 remain unchanged for entities based in neighbouring countries. 

He added that if a firm from a land border country holds even a small stake but gains operational influence through technology transfer or management participation, the investment proposal would still require government approval. 

Defined Timeline for Selected Investment Proposals 

The policy changes also introduce a defined timeline for processing investment proposals in specific sectors. 

Applications linked to areas such as capital goods, electronic capital goods, electronic components, polysilicon, ingot-wafer production, advanced battery components and rare earth processing will be reviewed within 60 days. 

Officials said the list of sectors may be revised by a committee of secretaries chaired by the Cabinet Secretary. 

Background to Press Note 3 

Press Note 3 was introduced on April 17, 2020 during the COVID-19 pandemic. The rule required government approval for investments originating from countries sharing land borders with India or where the beneficial owner of the investment was based in such countries. 

The measure was intended to prevent opportunistic acquisitions of Indian companies during a period of financial stress. Before the rule was introduced, investments from China could proceed through the automatic route without prior approval. 

Pending Applications and Implementation 

Reports suggest that government officials said around 600 investment proposals are currently pending under the Press Note 3 framework. 

The policy amendments approved by the Union Cabinet will come into effect once formal notifications are issued by DPIIT and the Ministry of Finance. 

Read More: Sriperumbudur Emerges as Key Manufacturing Hub Supporting Tamil Nadu $1 Trillion Economy Goal! 

Conclusion 

The revised rules introduce a limited adjustment to the existing framework by allowing minority, non-controlling investments linked to neighbouring countries through global investors, while retaining the approval requirement for entities directly based in those nations. 

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