Centre Clarifies Press Note 3 Amendments; Keeps China Investment Curbs Firm

The Centre on Wednesday clarified that global investors having Chinese shareholding of up to 10% will be eligible to invest in India under the automatic route, but this would depend on sectoral caps. Earlier, foreign entities with Chinese shareholders, or from other land-bordering nations owning even a single share, required mandatory approval to invest in any sector in India under Press Note 3 of the foreign direct investment policy.

“All the restrictions for investors from land-bordering countries (LBCs) are still applicable. There is no relaxation so far as entities or investors in LBCs are concerned. This relaxation is only for entities in non-LBCs having beneficial owners from LBCs below 10 per cent and with a non-controlling stake... there are no relaxations as far as investments from LBCs are concerned,” Department for Promotion of Industry and Internal Trade (DPIIT) Joint Secretary Jai Prakash Shivahare said.

On Tuesday, the Union Cabinet recalibrated its approach, easing some restrictions on investments involving land-bordering countries with India. The amendments to Press Note 3 include allowing investors from China and other land-bordering countries holding up to a 10% non-controlling stake to invest under the automatic route.

It also introduced a definitive timeline of 60 days for processing investment proposals in select sectors, including electronics, to boost manufacturing and scale domestic production.

The clarification effectively distinguishes between direct investments from land-bordering countries, which still require government approval, and global funds with minor, non-controlling shareholding from such countries, which may now qualify for the automatic route.

As per reports, proposals for investments from China and other land-bordering countries will include advanced battery components, rare-earth permanent magnets and rare-earth processing sectors, and will be processed within 60 days. Other sectors include capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer.

Why Was Press Note 3 Introduced?

Press Note 3 was introduced in 2020 during the pandemic to protect Indian companies and prevent opportunistic or hostile takeovers during a period of economic vulnerability. The policy required investments from countries sharing a land border with India to undergo government approval.

The government noted that the previous rules were limiting investment in cases where investors from neighbouring countries held only small or non-controlling stakes, including through international private equity and venture capital funds. The Galwan Valley clash of 2020 between New Delhi and Beijing also prompted tighter scrutiny of investments from Chinese companies.