NEW DELHI: The Union Cabinet, chaired by Prime Minister Narendra Modi, on Tuesday eased the restrictions on investments from countries sharing land borders with India, including China, by allowing investments through the automatic route for non-controlling stakes below 10 per cent.
The amendments to Press Note 3 of 2020 also introduced a definitive 60-day timeline for processing investment proposals in sectors such as electronic components, capital goods, and solar cells.
The changes have been approved six years after the curbs were introduced, and are aimed at boosting foreign investment from China to help India integrate with global value chains and boost domestic manufacturing.
The government expects these changes in the foreign direct investment (FDI) policy to enable greater inbound investments from global funds into startups and deep-tech firms, while still maintaining some amount of regulatory oversight.
Till now, prior government approval was mandatory in the case of any investment proposals originating from a country that shares a land border with India — China, Bhutan, Nepal, Bangladesh, Pakistan, Afghanistan, and Myanmar — including cases where the investor was from one of these countries. While India never banned FDI from China, approvals under the inter-ministerial committee route were time-consuming, often taking up to a year or more for investment proposals from Chinese companies.
Known as ‘Press Note 3’, India’s position was revised in April 2020 to curb “opportunistic takeovers/acquisitions” of domestic firms, considering their financial stress due to the Covid-19 pandemic. The move, however, was mainly targeted at restricting investments from China amid tensions at the Galwan border, but it didn’t define beneficial ownership. Before April 17, 2020, investments from China could proceed without any prior government approval.
However, the application of Press Note 3 even in cases where investors from land border countries held only non-strategic and non-controlling stakes was adversely affecting investment flows, including those from global private equity and venture capital funds.
“It is expected that the new guidelines will provide clarity and ease of doing business in India, and facilitate investments that can contribute towards greater FDI inflows, access to new technologies, domestic value addition, expansion of domestic firms, and integration with global supply chains. This would help in leveraging and enhancing India’s competitiveness as a preferred investment and manufacturing destination,” according to an official statement.
This means that an investor from China or any land border country holding a 10 per cent stake in a firm will be allowed to make an investment. Towards this, the definition of beneficial owner with a minimum threshold of at least 10 per cent has been introduced, an official said.
According to the changes approved by the Cabinet, the definition and criteria for determination of beneficial ownership will be aligned with the Prevention of Money Laundering Rules, 2003.
As a result, investment proposals where beneficial ownership is up to 10 per cent will be allowed. This means that an investor from China or any land border country holding below a 10 per cent stake in a firm will be allowed to make an investment.
Atul Pandey, partner at Khaitan & Co, said the proposed amendments are expected to bring greater clarity to the beneficial ownership test under the Press Note 3 framework and facilitate more predictable structuring of joint ventures, minority investments by global funds, and capitalisation of existing companies, particularly in sectors such as manufacturing and technology where collaborative investments are common.
Proposals for investments in specified sectors and activities of manufacturing in capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer will be processed and decided within 60 days. A committee of secretaries under the Cabinet Secretary will have the authority to revise the list of specified sectors.
“In these cases, the majority shareholding and control of the investee entity will be with resident Indian citizen(s) and/or resident Indian entity(ies) owned and controlled by resident Indian citizen(s), at all times,” the statement said.
“In addition, the introduction of a defined 60-day decision timeline for proposals in specified manufacturing sectors (including electronic components, capital goods, and solar manufacturing value chains) is expected to bring greater certainty to investors seeking technology partnerships and manufacturing collaborations in India. Overall, these changes are intended to support ease of doing business and improve the predictability of the investment approval process under the Press Note 3 regime,” Pandey said.
The latest decision comes after a high-level committee headed by NITI Aayog member Rajiv Gauba last year recommended that the government either withdraw restrictions on investments originating from China or consider calibrated easing of curbs. The panel, in an internal report finalised in October, had suggested withdrawing Press Note 3 or relaxing the restrictions by allowing investment proposals where beneficial ownership is less than 10 per cent.
It had also suggested allowing China and other land border countries to invest up to 49 per cent cumulatively in non-strategic sectors, subject to approval by a committee headed by the Cabinet Secretary. However, the largest shareholder in the Indian investee company would need to have dominant Indian control.
India may adopt a “calibrated” and “step-by-step” approach to easing norms on investments originating from China, Union Commerce and Industry Minister Piyush Goyal had said at the Business Standard Manthan 2026 event last month.
Vaibhav Kakkar, senior partner at Saraf and Partners, said the move reflects a nuanced recalibration rather than a wholesale liberalisation of existing regulations. “That said, companies should remain mindful that sectoral caps, beneficial ownership disclosures, and other conditionalities would continue to apply. Seen in a broader context, the decision signals a more pragmatic foreign investment policy shift for India, one that seeks to balance strategic caution with the need for predictable, growth-oriented capital flows into the Indian economy.”
Source: The New Indian Express
How Youth Revolt In Two South Asian Nations Gave Differing Results In Polls 