India May Ease Foreign Direct Investment Restrictions From China As Relations Improve

India is considering relaxing its restrictions on foreign direct investment (FDI) from China, as diplomatic relations between the two nations show signs of improvement. A senior government official suggested that Press Note 3, which currently requires prior approval for investments from countries sharing land borders with India, might be revised if necessary. "All options are open," the official told The Economic Times.

Press Note 3 was introduced in April 2020 amid border tensions to prevent "opportunistic takeovers" during the pandemic, particularly by Chinese companies. This rule mandates government approval for FDI from neighbouring countries. However, as circumstances evolve, India is contemplating a more flexible approach.

NITI Aayog's Recommendations

Last month, NITI Aayog proposed removing the requirement for prior approval for FDI up to 24 per cent from Chinese entities. The think-tank argued that the current system causes delays due to the need for security clearance from both the home and foreign ministries, as Business Standard reported. It recommended streamlining procedures where risks are minimal to seize strategic economic opportunities.

The backdrop of this potential policy shift includes US tariffs and India's strategic recalibration efforts. As global trade dynamics change, India may seek to balance its strategic risks by adjusting its trade ties with China.

Diplomatic Engagements

India and China have resumed high-level engagements, including ministerial visits and discussions on tourism, trade, and border issues. Recently, Chinese Foreign Minister Wang Yi visited India and agreed to facilitate supplies of rare earth materials and fertilisers. External Affairs Minister S Jaishankar also visited Beijing this month for the first time in six years and met President Xi Jinping.

Prime Minister Narendra Modi is expected to attend the SCO Summit in China from August 31 to September 1. During this event, he will meet President Xi Jinping on the sidelines, further indicating improving diplomatic ties between the two countries.

Commerce Ministry's Stance

Commerce Minister Piyush Goyal has previously defended Press Note 3 but hinted at possible flexibility in its application as per Business Standard report. He stated that while the decision was made in a specific strategic context at that time, it could change as circumstances evolve.

This evolving approach signals India's willingness to adapt its policies based on changing geopolitical and economic conditions. By potentially easing restrictions on Chinese FDI, India aims to foster better economic relations while safeguarding its strategic interests.