New Delhi, March 10 The government on Tuesday eased foreign direct investment (FDI) norms for China and other countries sharing land borders with India, allowing overseas firms with up to 10% ownership from these nations to invest in the country without mandatory approval.
Previously, overseas firms with shareholders from these nations owning even a single share had to seek mandatory approval to invest in India in any sector.
However, other conditions of FDI norms, including sectoral caps and entry routes, will apply to these investments.
Also, these investments will be subject to prior reporting of information/details to the DPIIT (Department for Promotion of Industry and Internal Trade).
The government has amended Press Note 3 of 2020 in this regard. The decision was taken in a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi.
The amendment in the press note provides for a definition and criteria for the determination of 'Beneficial Ownership,' which is widely used by the investing community under the Prevention of Money Laundering Rules, 2003.
The beneficial ownership test will be applied at the level of the investor entity.
"Investors with non-controlling land border countries (LBCs) with up to 10% beneficial ownership shall be permitted under the automatic route, subject to applicable sectoral caps, entry routes, and attendant conditions," an official statement said.
The government has also decided on the expedited clearance of investment proposals from LBCs in specific sectors.
Under this, proposals for LBC investments in specified sectors/activities of manufacturing in capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer or any other sector/activity added by the committee of secretaries, headed by the Cabinet Secretary, will be processed and decided within 60 days.
In these cases, the majority shareholding and control of the investee entity will be with resident Indian citizens and/or resident Indian entities owned and controlled by resident Indian citizens.
To curb opportunistic takeovers/acquisitions of Indian companies due to the COVID-19 pandemic, the government amended the FDI policy through Press Note 3 (2020) on April 17, 2020.
Following this, an entity of a country which shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only after obtaining permission from the government.
Additionally, any transfer of ownership of any existing or future FDI in an entity in India resulting in the beneficial ownership falling within these jurisdictions also requires government approval.
This rule was seen as adversely affecting investment flows from investors, including global funds such as PE/VC funds.
It is expected that the new guidelines will provide clarity and ease of doing business in India, and facilitate investments which can contribute towards greater FDI inflows, access to new technologies, domestic value addition, expansion of domestic firms, and integration with the global supply chain.
This would help in leveraging and enhancing India's competitiveness as a preferred investment and manufacturing destination.
Countries that share land borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.
China holds the 23rd position with only 0.32% share (USD 2.51 billion) in the total FDI equity inflow reported in India from April 2000 to December 2025.
The ties between the two countries nosedived significantly following the fierce clash in the Galwan Valley in June 2020, marking the most serious military conflict between the two sides in decades.
Following these tensions, India has banned over 200 Chinese mobile apps like TikTok, WeChat, and Alibaba's UC browser. The country has also rejected a major investment proposal from electric vehicle maker BYD.
Though India has received minimal FDI from China, the bilateral trade between the two nations has grown multi-fold.
China has emerged as the second largest trading partner of India.
In 2024-25, India's exports to China contracted by 14.5% to USD 14.25 billion as against USD 16.66 billion in 2023-24. The imports, however, rose by 11.52% in 2024-25 to USD 113.45 billion against USD 101.73 billion in 2023-24. The trade deficit was widened to USD 99.2 billion in 2024-25 from USD 85 billion in 2023-24.
During April-January 2025-26, India's exports to China rose by 38.37% to USD 15.88 billion, while imports rose by 13.82% to USD 108.18 billion. The trade deficit stood at USD 92.3 billion.