New Delhi: Nearly six years after India imposed strict screening of investments from countries sharing a land border with it during the Covid-19 pandemic, the Union Cabinet has reportedly approved easing the restrictions introduced through Press Note 3 of April 2020, according to government and industry sources familiar with the decision.
Press Note 3 was issued by the Department for Promotion of Industry and Internal Trade on 17 April 2020, when the economic disruption caused by Covid-19 had sharply reduced valuations of many Indian companies. The government said at the time that the policy was intended to prevent “opportunistic takeovers or acquisitions of Indian companies due to the Covid-19 pandemic”.
The rule required government approval for any foreign direct investment from countries sharing a land border with India, including China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. Prior to that decision, many such investments, particularly from Chinese investors, had entered India through the automatic route in sectors such as consumer technology, startups and electronics manufacturing.
The policy change effectively tightened scrutiny of Chinese capital without naming China explicitly. In the months that followed, the broader relationship between India and China deteriorated sharply amid the military standoff along the Line of Actual Control and the clash in the Galwan Valley in June 2020.
Government and industry officials say the Cabinet has now reportedly cleared changes to the 2020 framework, easing the approval regime for certain categories of investment from neighbouring countries. The detailed contours of the modification are expected to be issued through a fresh DPIIT press note and corresponding amendments to the foreign investment rules under the Foreign Exchange Management Act.
Officials and analysts familiar with the discussions say the amendments are aimed at reducing the administrative burden on non-sensitive investments while retaining the overall screening mechanism. Under the proposed framework, certain categories of investment are expected to face a more streamlined approval process rather than the exhaustive case-by-case scrutiny that has been in place since 2020.
Policy discussions have also centred on the introduction of a possible “de minimis” threshold, under which small or low-value investments, particularly those where the beneficial ownership from a neighbouring country is minimal, may not require full government approval. The precise thresholds and categories are expected to become clear once the formal notification is issued.
The review is also understood to focus on sectors central to India’s manufacturing push, including electronics, electric vehicles and renewable energy components, where Indian industry remains heavily dependent on Chinese supply chains and specialised capital. Analysts say the shift reflects a broader strategy of encouraging companies to invest and manufacture locally in India rather than relying solely on imports of finished goods.
Industry groups have for several years argued that the 2020 rule slowed investment flows in sectors dependent on Chinese capital and supply chains, including electronics manufacturing, venture capital funding for startups and components used in renewable energy and automobiles. Several investment proposals remained pending for long periods under the approval mechanism, creating uncertainty for both investors and Indian companies.
The debate over revisiting the restrictions has been building in policy circles. In April last year, The Sunday Guardian had argued in an editorial analysis (Mutual need doctrine: Why India holds the cards with China and the U.S.) that India should move towards a calibrated framework allowing Chinese investment in non-sensitive sectors while maintaining strong safeguards in strategic areas.
The development is also being read by strategic observers as a sign that relations between India and China may be gradually moving towards a phase of stabilisation after years of tension following the 2020 border crisis. Diplomatic engagement between the two countries has increased in recent months, and India is scheduled to host the BRICS summit this year as part of its presidency of the grouping.
Prime Minister Narendra Modi had invited Chinese President Xi Jinping to attend the BRICS summit in India during a bilateral interaction last year, though Beijing has not yet formally confirmed whether Xi will travel for the meeting.
For strategic observers, the easing of investment restrictions is being seen as a positive signal in the broader trajectory of India-China relations. Analysts have long argued that despite geopolitical rivalry and unresolved boundary issues, the two countries have significant economic complementarities and that greater engagement between them could be beneficial for both sides rather than a one-way arrangement.
A strong voice within the strategic atmosphere has been pushing for a wider and deeper engagement with Beijing, regardless of the relations with Washington.
At the same time, the modification of Press Note 3 does not automatically reverse other restrictions imposed after 2020. In the months following the border crisis that year, the government banned more than 200 Chinese mobile applications, including TikTok, citing national security concerns.
Those bans were issued under provisions of the Information Technology Act by the Ministry of Electronics and Information Technology and are legally separate from the foreign investment policy framework governed by the commerce and finance ministries. As a result, any reconsideration of those restrictions would require separate action by the relevant ministries and security agencies.
Officials say the Cabinet’s move therefore represents a recalibration of the investment screening regime introduced during the pandemic rather than a complete rollback of the wider security measures adopted after 2020. While India appears willing to review the framework governing foreign investment from neighbouring countries, other regulatory restrictions imposed in the aftermath of the border crisis would remain in place unless they are examined independently by the authorities concerned.
