Govt Clarifies FDI Easing Under Press Note 3 Not Meant for Chinese Firms: BS Report

The government has clarified that the recent easing of foreign direct investment (FDI) rules under Press Note 3 does not relax restrictions on Chinese firms investing in India, according to a report by Business Standard.

Officials said entities registered in China, Hong Kong and other countries sharing land borders with India will continue to require prior government approval for investments across sectors. The relaxation applies only to global investors based in non-land-border countries that have limited Chinese shareholding.

Under the revised policy, foreign firms with beneficial ownership from land-border countries of up to 10 percent can invest through the automatic route, provided the stake is non-controlling.

“All the restrictions for investors from land-bordering countries are still applicable,” said Jai Prakash Shivahare, Joint Secretary at the Department for Promotion of Industry and Internal Trade (DPIIT). “This relaxation is only for entities in non-land-border countries having beneficial owners from such countries with stakes below 10 percent and with non-controlling stakes,” he added.

He clarified that investments directly originating from land-border countries will continue to need government approval. Even a small stake combined with technology transfer could trigger scrutiny.

“If a firm from a land-border country provides technology and holds even a 1 percent stake through which it may exercise control, the investment will still require government approval,” Shivahare said.

Policy Shift

The clarification came a day after the Union Cabinet approved a calibrated easing of restrictions introduced under Press Note 3. The government has allowed limited Chinese or land-border shareholding in global funds investing in India through the automatic route. It has also introduced a 60-day timeline to process investment proposals in certain manufacturing sectors.

Officials said the changes aim to ease concerns raised by private equity and venture capital funds. Many global funds have Chinese limited partners. Even small shareholding earlier triggered mandatory government approval, slowing investment flows.

DPIIT Secretary Amardeep Singh Bhatia said several global investment firms had raised the issue. “Large global investors such as BlackRock and Carlyle were seeking easing of the Press Note 3 restrictions,” Bhatia said.

India issued Press Note 3 on April 17, 2020. It required prior government approval for investments from countries sharing land borders with India. The policy was introduced to curb opportunistic acquisitions of Indian firms during the economic stress caused by the COVID-19 pandemic.

The move was widely seen as targeting Chinese investments amid rising geopolitical tensions following border clashes in 2020. Before that change, Chinese investments could proceed through the automatic route in most sectors.

Faster Approval

Under the revised FDI policy, the government has created a fast-track mechanism for proposals in select sectors. Applications in areas such as advanced battery components, rare earth permanent magnets and rare earth processing will be processed within 60 days.

The list also includes capital goods, electronic capital goods, electronic components, and polysilicon and ingot–wafer manufacturing. Officials said the sectors could be expanded or modified by a committee of secretaries headed by the Cabinet Secretary. However, security and political clearances will continue to remain stringent.

“Opening up does not mean that concerns with regard to security have gone away,” Bhatia said.

Implications for the Auto Sector

Although the FDI policy revision does not directly target the automotive sector, the clarification also dampens speculation that Chinese automakers could find an easier path to enter the Indian market in the future.

Several Chinese electric vehicle makers have been exploring partnerships or manufacturing investments in India. BYD, the world’s largest EV maker, had earlier proposed a $1 billion investment to set up an EV and battery manufacturing plant in India. The proposal, submitted in partnership with Hyderabad-based Megha Engineering and Infrastructure, was not approved by the government due to security concerns. As a result, BYD currently sells only imported models in India and has a limited market presence.

Meanwhile, JSW Group’s joint venture with China’s SAIC Motor for MG Motor India received government clearance in 2024. Separately, JSW has partnered with Chinese automaker Chery to develop plug-in hybrid SUVs under its own brand. The project involves a planned investment of $3 billion over five years, with manufacturing facilities planned in Maharashtra and Odisha.

Electronics Link

Modern vehicles rely heavily on electronic systems such as power electronics, sensors, telematics modules and battery management systems. Electric vehicles have even higher electronic content compared with conventional vehicles. As a result, supply chains for automotive and EV components are becoming closely linked to the broader electronics manufacturing ecosystem.

Investments in areas such as printed circuit boards, semiconductor-linked components and power electronics often serve both consumer electronics and automotive sectors.

Officials said the revised policy aims to balance investment flows with national security concerns while strengthening domestic manufacturing.