India is considering a significant policy shift that could reshape the investment landscape with its northern neighbor. The government is evaluating proposals to relax Foreign Direct Investment (FDI) restrictions from China, a move that signals warming bilateral ties after years of strained relations.

Background: Press Note 3

The existing restrictions stem from Press Note 3, introduced in April 2020. It mandated prior government approval for FDI from all countries sharing land borders with India. While framed broadly, it was largely directed at curbing Chinese investments in sensitive sectors amid heightened border tensions.

Policy Shift Under Consideration

According to officials, the government is now reviewing these provisions. Niti Aayog has recommended dropping the mandatory approval requirement for Chinese investments up to 24%. A senior government official remarked, “All options are open,” signaling flexibility in revisiting the rules.

Commerce Minister Piyush Goyal acknowledged that the restrictions were necessary at the time but hinted that policy could evolve based on changing circumstances.

Diplomatic Context

This potential easing aligns with recent diplomatic engagements between the two countries. Ministerial visits, coupled with agreements on tourism and aviation, have created a more positive atmosphere. The timing is particularly notable as Prime Minister Narendra Modi prepares to attend the Shanghai Cooperation Organisation (SCO) Summit in China, further boosting speculation of renewed cooperation.

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Key Data Snapshot

Aspect	Details
Current FDI Rule (Press Note 3)	Prior approval required for investments from countries sharing land borders
Targeted Impact	Restrictions primarily affected Chinese investments
Niti Aayog Proposal	Allow up to 24% Chinese investment without prior approval
Government’s Current Stance	“All options are open” – official statement
Commerce Minister’s View	Restrictions were important in 2020; may evolve with time
Diplomatic Engagements	Ministerial visits, agreements on flights and tourism
Upcoming Event	PM Modi’s visit to China for the SCO Summit
Strategic Implication	Could unlock Chinese capital flows into Indian markets while balancing security concerns

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Summary

India’s potential recalibration of FDI rules for China marks a cautious but important step toward economic and diplomatic normalization. While security sensitivities remain, the broader message is one of pragmatism—welcoming capital inflows to fuel growth while leveraging improved bilateral relations.

If implemented, the move could unlock new investment channels for sectors in need of foreign capital, strengthening India’s growth story while reshaping the dynamics of India-China economic engagement.