A shift in policy by India will permit investments from China, signaling New Delhi’s effort to rebuild economic engagement with Beijing after almost six years of strained relations.
The Indian cabinet has endorsed revisions to the country’s foreign direct investment (FDI) framework. The changes allow funding from nations that share land borders with India in sectors such as electronic component manufacturing, capital goods production and solar cell manufacturing, the government announced in a statement on Tuesday.
India’s neighboring countries include China, Pakistan, Nepal, Bhutan, Bangladesh, and Myanmar. However, the earlier restrictions were largely designed to limit inflows from China, the only bordering country that is also a major global economic power.
Relations between Beijing and New Delhi deteriorated in 2020 after a deadly confrontation along their disputed frontier in the Galwan Valley, prompting India to tighten investment regulations that year.
According to the updated policy guidelines, investment proposals from Chinese firms in Indian companies will now be reviewed and processed within 60 days, provided that Indian shareholders retain ownership control.
In addition, the revised framework allows Chinese companies to purchase up to a 10 percent stake in Indian firms without requiring prior approval from the government in New Delhi.
Arpit Chaturvedi, South Asia advisor at Teneo, said limited involvement of Chinese companies in India’s manufacturing sector could help multinational corporations relocate final assembly operations to India while continuing to rely on Chinese supply inputs.
He added that such a move would strengthen India’s position within the “China-plus-one” supply chain strategies adopted by global companies seeking alternatives to dependence on China.
During the past six years, Chinese firms trying to invest in India encountered numerous obstacles due to stringent security screenings carried out by India’s foreign and home ministries.
In its explanation of the policy shift, the Indian government noted that the restrictions had negatively impacted investment inflows, including funding from international investors such as private equity and venture capital funds, especially when their holdings were minor and non-controlling.
Authorities in India also expect that the policy adjustment will make the business environment more favorable and attract greater funding from international investors, particularly for startups and deep-tech ventures.
Reema Bhattacharya, head of Asia risk insight at Verisk Maplecroft, described the move as a practical adjustment rather than a fundamental transformation in relations between India and China.
Nevertheless, some analysts remain doubtful that the regulatory changes will significantly increase Chinese investments, as unresolved border disputes and broader strategic rivalry between the two countries continue.
Bhattacharya noted that a large influx of Chinese capital into India is unlikely in the near term.
Although the policy signals a relaxation of earlier rules, she said Chinese companies may remain cautious, considering the possibility that restrictions could be tightened again if tensions between the two countries escalate.
According to her, the decision reflects economic pragmatism as both countries navigate an increasingly fragmented global landscape, even though deep-rooted strategic mistrust still exists.
Efforts to gradually improve relations between the world’s two largest emerging economies have been underway since last year. After the United States imposed 50 percent tariffs on India in August, Indian Prime Minister Narendra Modi traveled to China for the first time in seven years to attend the Shanghai Cooperation Organization summit.
Following that visit, both nations have taken steps aimed at stabilizing relations, including restoring flight connections and reducing troop presence along their disputed border.
Chinese Foreign Minister Wang Yi said on Sunday that Beijing and New Delhi should back each other’s leadership of the BRICS group over the next two years in order to create new opportunities for the Global South.