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Summary
Six years after putting restrictions on investment by firms domiciled in countries that share a land border with India, the government relaxed the norms on Tuesday. Mint looks at the significance of this move. Will it lead to a surge in foreign direct investment?
What is Press Note 3 on FDI?
In April 2020, the government issued Press Note 3 which mandated that any foreign direct investment (FDI) by firms based in countries sharing India’s land borders needed prior government nod on a case-by-case basis. The countries included China, Nepal, Bangladesh, Pakistan, Bhutan, Myanmar and Afghanistan. This was done to prevent any opportunistic takeovers during the pandemic era, and was mainly targeted against China. To be sure, Press Note 3, while amending the then FDI policy and subjecting investment from land border countries to more scrutiny, did not bar investment from them.
So, what has been changed now?
On Tuesday, the government relaxed the Press Note 3. Any investor, whose beneficial ownership by a person or entity from a land border country is sub-10%, can invest up to 10% in an Indian firm through the automatic FDI route. The only rider is that foreign investors must not exercise management control or hold a board seat. The government also said that any investment from these countries in capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer sectors will continue to be considered case-to-case, but the approval or otherwise will be given within 60 days.
What did Press Note 3 achieve?
Its issuance coincided with deterioration in India and China’s political-economic ties. It effectively shut out Chinese FDI, hurting sectors such as technology, manufacturing and startups that gained from Chinese capital. China is thus ranked a low 23rd among FDI nations—at $2.51 billion during April 2000-December 2025, just 0.3% of India’s total.
Why the change of heart in Delhi?
A section of policy makers have been advocating against India’s exclusion from the Chinese supply chain, which is not only huge but also cost-effective. India, they said, was the real loser. Chinese FDI will help set up manufacturing units in the country and reduce large scale imports from China that has sent the trade deficit to almost $100 billion. Also, the Chinese supply chain, they argued, was not all Chinese-owned. There are many non-Chinese firms manufacturing in China, and they can be attracted to locate in India.
Will India now be flush with Chinese capital?
Hard to say. The relaxation is limited. Large PE, VC funds, which have marginal Chinese ownership can now invest in India. Earlier, any funds with even a tiny fraction of Chinese ownership were barred. Any FDI from Chinese-owned entities will continue as per the Press Note 3 norms. In the case of the sectors mentioned earlier, the nod or rejection will be come in within 60 days. It’s unclear if these changes will trigger a flood of Chinese FDI as major restrictions remain and countries such as Vietnam offer better prospects.
English (US) ·