India Amends Press Note 3, Allows FDIs to Select Sectors After Six-Year Freeze | Explained

New Delhi on Tuesday approved changes to Press Note 3 of 2020, easing restrictions on foreign direct investment (FDI) from China in select sectors after six years of standoff. The move comes in a bid to ease a capital squeeze and enhance economic ties as interest between the two countries renews.

Prime Minister Narendra Modi’s cabinet approved changes to FDI rules that had restricted investments from China and other land-bordering countries. The easing of investment norms has been granted for key technology sectors including electronics, capital goods, and solar cells, according to a statement.

It also said Chinese investments in these sectors will be processed within 60 days, provided that majority shareholding remains with an Indian resident at all times. The easing comes amid rising demand from industry that heavily relies on Chinese cutting-edge technology and capital.

 “The change strengthens ease of doing business, enhances investor confidence, and positions India as a more attractive destination for long-term capital and technology partnerships.”

New Delhi is also likely to allow Chinese investments in additional sectors through a fast-track approval mechanism, reports said, citing Amardeep Singh Bhatia, Secretary at the Department of Commerce.

Press Note 3 was initially introduced 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. This move limited opportunities for technology transfer and deeper domestic manufacturing partnerships—especially in sectors such as electric vehicles and electronics—thereby continuing India’s reliance on imports.

Why Were Chinese FDI Restricted?

Friction between India and China intensified in 2020 during the Galwan Valley clash, prompting New Delhi to tighten scrutiny of investments from Chinese companies.

The clash along the Himalayan frontier resulted in the deaths of 20 Indian soldiers and four Chinese soldiers. Following the new security clearance requirements for Chinese entities, several investment plans stalled, including China’s 2023 proposal to invest $1 billion in an electric vehicle joint venture.

Prime Minister Narendra Modi visited China last August after seven years and met Chinese President Xi Jinping to discuss ways to improve bilateral ties.

Following the de-escalation of tensions and improving relations, New Delhi and Beijing have since resumed direct flights and eased visa procedures.

According to a Reuters report, India has also eased restrictions on the procurement of Chinese equipment by state-owned power and coal companies.

Why Chinese Investments Are Vital for India

India offers large and expanding consumer market for China as the Chinese entities deal with sluggish domestic growth and increasing trade barriers. For India, Chinese firms are a valuable partners to accelerate manufacturing and for scaling production capacity. The easing of restrictions will help leverage foreign capital and increase domestic production rapidly and eventually reduce import dependence.

“From an investment perspective, this move could unlock capital flows into startups, deep-tech ventures, and manufacturing value chains such as electronics components and solar supply chains,” Rahul Turki, Partner and Global Value Ecosystem Leader at Grant Thornton Bharat, said.

“India’s recalibration of Press Note 3 signals a shift from passive deficit management toward a more deliberate strategy of fostering strategic partnerships,” Kumudini Bhalerao, senior partner MMJC and Associates said. Bhalerao also added that the proposed easing may be better understood not as an indiscriminate opening, but as a calibrated “trade-for-investment” approach.

This change is particularly relevant for the electronics and renewable energy sectors, where Indian manufacturers have been advocating for minority JVs to gain the technical "know-how" necessary to scale up domestic production.