India Looking to Ease Chinese FDI Rules Amid Improving Ties with Beijing

India is considering to ease restrictions on foreign direct investment (FDI) from China, a senior government official hinted at a time when there are signs of improving diplomatic ties between the two countries.

According to the official, quoted by the Economic Times, the Press Note 3, which currently mandates prior approval for investments from countries sharing land borders with India, could be reconsidered if needed. “All options are open,” the official stated.

NITI Aayog had recommended removing prior approval for FDI up to 24 per cent from Chinese entities. The government think tank was of the opinion that the current system, which requires security clearance from both the home and foreign ministries, is delaying several large deals. Further, they called for streamlined procedures, especially where risks are low, to avoid holding back strategic economic opportunities.

India-China Ties Improving

Meanwhile, India and China have resumed high-level engagements, including ministerial visits and talks on tourism, trade and border issues. Recently, Chinese Foreign Minister Wang Yi visited India, following which the country agreed to facilitate rare earth and fertiliser supplies.

On the other hand, for the first time in six years, External Affairs Minister S Jaishankar travelled to Beijing this month to meet President Xi Jinping. Additionally, PM Modi is expected to attend the SCO Summit in China from August 31–September 1, where he will meet Xi on the sidelines.

US Tariffs as a Backdrop

India’s move towards being open to review its FDI policy on China comes at a time when US President Donald Trump imposed 50 per cent tariffs on Indian goods, while leaving China largely untouched.

This has led to speculations that India may seek to recalibrate trade ties to balance its strategic risks.

What is Press Note 3?

The Press Note 3 was introduced in April 2020 following border tensions and requires prior government approval for FDI from neighbouring countries. This rule was intended to prevent “opportunistic takeovers” during the pandemic, particularly by Chinese firms.

Earlier, Commerce and Industry Minister Piyush Goyal had defended the rule but hinted at flexibility. “The decision reflected the strategic context at that time,” he said. “But as times change, so must our decisions.”