Govt Mulls Niti Aayog’s Proposal to Relax Investment Norms for Chinese Firms to Attract FDI

NITI Aayog has asked the Prime Minister Narendra Modi-led government to relax rules under the 2020 Press Note 3, which requires extra scrutiny for investments made by Chinese companies. The government’s think tank said the restrictions have resulted in delays for certain significant deals. It has proposed that Chinese firms should be allowed to take a stake up to 24% in an Indian company without getting government approval, Reuters reported. The proposal by NITI Aayog aims to boost foreign direct investment (FDI) in the country. 

The think tank’s proposal is reportedly under consideration by the Prime Minister's Office (PMO), the commerce ministry’s industries department, and the finance and foreign ministries.

NITI Aayog’s proposal comes at a time when the rules limiting China’s investment in India have been looked at as a crucial factor behind a large dip in the South Asian country’s FDI. 

The restrictions on investments were introduced by the Indian government under the Press Note 3, following the 2020 border escalation, which resulted in strained diplomatic ties between two neighbouring nations. 

Under the restrictions, the Chinese companies are required to get security clearance from both India’s home and foreign ministries before making an investment in Indian firms. This has made the process time-consuming. 

“An entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the government route,” the Ministry of Commerce & Industry had said in the 2020 note. 

Demand to Ease Restrictions 

But this isn’t the first time that the proposal to relax rules has surfaced from government corners. Speaking at the CII Global Economic Policy Forum 2024, former 16th Finance Commission chairman Arvind Panagariya too had highlighted that India should be open to taking investments from China. 

“Beyond that [security risks], we may allow Chinese investments. Remember that we also acquire leverage against China when a sizeable investment by that country is on our soil,” the former Finance Commission chairman had said, the Economic Times earlier reported. 

A similar move was also suggested by India’s Chief Economic Advisor (CEA), V Anantha Nageswaran, for greater collaboration with China to integrate it with the country’s supply chain.