Blitz Bureau
In a potential inflection point for India’s foreign investment policy, NITI Aayog — India’s premier policy think tank — has proposed a relaxation of the stringent restrictions on Chinese investments. If approved, the move could realign the country’s approach to capital inflows from its northern neighbour.
The proposal suggests allowing Chinese firms to hold up to a 24 per cent stake in Indian companies without prior Government approval, arguing that such a threshold would not grant significant control and thus poses limited security risk.
The recommendation marks a significant departure from the tightly guarded regime instituted in April 2020 through Press Note 3, which mandated Government scrutiny for all foreign direct investments (FDI) originating from countries sharing land borders with India, notably China. That policy was introduced in the wake of the deadly Galwan clash and was intended to prevent opportunistic takeovers of Indian firms during the pandemic — induced economic downturn.
However, nearly five years later, the economic landscape has shifted. India is aggressively seeking to revive its status as a top investment destination amidst a global slowdown in capital flows. Net FDI inflows into India plummeted to just $353 million in the last financial year — a sharp fall from $43.9 billion in 2020–21. With domestic firms, particularly in technology, green energy, and advanced manufacturing, in urgent need of capital, the Government is under pressure to create a more investor-friendly climate.
Yet, despite these economic imperatives and a noticeable thaw in diplomatic relations — evidenced by External Affairs Minister S. Jaishankar’s recent visit to Beijing and the resumption of tourist visas for Chinese nationals after five years — the political appetite for relaxing curbs on Chinese investment remains uncertain. Sources within the Government say that, as of now, there is no active review of Press Note 3 under way. “It is still early days,” a senior official noted, adding, “There has been no discussion on a relaxation for now and it is unlikely at present.”
This ambivalence underscores the political tightrope the Modi Government must walk. On one hand, Finance Minister Nirmala Sitharaman has acknowledged the potential for a cautious revival of India-China business ties, noting that both sides see value in exploring economic cooperation. On the other, any move perceived as conciliatory could trigger a political backlash at home, where the Galwan incident still casts a long shadow.
Government departments appear split. The Department for Promotion of Industry and Internal Trade (DPIIT), along with the finance and industry ministries, are said to be more amenable to the Aayog’s recommendations, viewing them as a pragmatic response to India’s capital needs. The home and external affairs ministries, however, remain cautious, with national security concerns continuing to drive their outlook.
Notably, the proposed 24 per cent cap appears designed to strike a balance. It would enable Indian firms — especially startups and mid-sized companies — to access much — needed capital in non-sensitive sectors without ceding control to Chinese investors. This avoids triggering the corporate law threshold for significant ownership and voting rights, set at 25 per cent. NITI Aayog has also recommended an overhaul of the current FDI approval process to make it more digital-first, streamlined, and transparent, removing the opacity that has marred the system.
Recent diplomatic overtures between the two nations may give political cover for incremental shifts. Jaishankar’s visit to Beijing was aimed at defusing border tensions and restarting broader engagement. Among the economic issues raised was China’s export curb on rare earth magnets, critical for India’s high-tech and renewable energy ambitions.
Despite these signals, caution still dominates official thinking. A major casualty of the current restrictions was BYD, the Chinese EV giant, which had to scrap a proposed $1 billion joint venture in India due to prolonged approval delays, an outcome that many in New Delhi privately admit hurt India’s EV ecosystem.
Thus, while the Government has not publicly endorsed any changes, the convergence of economic necessity, diplomatic outreach, and institutional advocacy, led by NITI Aayog, suggests that policy recalibration may not be far off. The lack of an immediate move should not be mistaken for rejection. Rather, the deliberations reflect a growing awareness that India must strike a balance between national security and economic pragmatism.
At a time when countries around the world are recalibrating their ties with China, New Delhi must carefully weigh the costs of prolonged economic disengagement against the benefits of selective, safeguarded cooperation. If adopted, NITI Aayog’s proposal could mark a meaningful step in that direction, signalling not a reversal of India’s China policy, but a maturing of it.