India Eases FDI Rules for China and Bordering Countries

India has relaxed restrictions on foreign direct investment from countries sharing land borders with the country, including China, according to government sources, in a policy shift aimed at encouraging greater investment and supporting economic growth.

The decision was approved by the Union Cabinet at a meeting chaired by Indian Prime Minister Narendra Modi. The move modifies provisions introduced in 2020 that required investors from neighbouring countries to seek mandatory government approval before investing in India.

Policy change to investment rules

The earlier restrictions were introduced during the early months of the COVID-19 pandemic through a policy known as Press Note 3. At the time, the government said the rule was designed to prevent “opportunistic takeovers or acquisitions” of Indian companies when global markets were unstable.

Under those rules, companies from countries sharing land borders with India — or entities with beneficial ownership in those nations — were required to obtain government approval before investing in any sector of the Indian economy.

The rule applied to seven neighbouring countries: China, Bangladesh, Pakistan, Nepal, Bhutan, Myanmar and Afghanistan.

Sources familiar with the cabinet decision say the government has now eased these conditions, allowing greater flexibility for investors from these countries while maintaining regulatory oversight.

Officials say the revised framework is intended to improve the business environment and encourage foreign investment into India’s growing economy.

In a statement, the government said the updated guidelines aim to “provide clarity and ease of doing business in India and facilitate investments which can contribute towards greater FDI inflows”.

Encouraging investment and technology access

Officials say the policy adjustment is also intended to attract capital, advanced technologies and integration with international supply chains.

According to the government statement, increased investment could help strengthen domestic manufacturing and support the country’s broader economic strategy.

The statement said greater inflows of foreign capital would “supplement domestic capital, support the objectives of Atmanirbhar Bharat, and accelerate overall economic growth”.

The term Atmanirbhar Bharat refers to India’s strategy to strengthen domestic production while expanding global trade and investment links.

Despite the proximity and scale of China’s economy, Chinese investment in India has remained relatively small in recent years.

Government data indicates that between April 2000 and December 2025, China ranked 23rd among investors in India. During that period, Chinese companies invested about 2.51 billion US dollars in India, representing approximately 0.32 percent of total foreign direct investment inflows.

Economic ties remain strong

Although Chinese investment has been limited, trade between the two countries has continued to expand.

China is currently India’s second-largest trading partner. However, the trade relationship is heavily imbalanced.

According to official data, India’s exports to China declined by around 14.5 percent during the 2024–2025 financial year, falling to about 14.25 billion dollars from 16.66 billion dollars the previous year.

At the same time, imports from China increased by roughly 11.5 percent, reaching approximately 113.45 billion dollars. This widened India’s trade deficit with China to around 99.2 billion dollars.

More recent figures show that trade flows remain strong. Between April and January of the 2025–2026 financial year, India’s exports to China rose significantly, while imports also continued to increase.

Even with rising exports, India continues to run a large trade deficit with China, reflecting the country’s reliance on Chinese machinery, electronics and industrial inputs.

Background to investment restrictions

Relations between India and China deteriorated sharply after a violent border clash between soldiers of the two countries in the Galwan Valley in June 2020. The incident was the most serious military confrontation between the two nations in decades.

In response, the Indian government tightened scrutiny of Chinese investment and banned more than 200 Chinese mobile applications, citing security concerns. Popular platforms such as TikTok, WeChat and UC Browser were among those blocked.

The investment rules introduced at the time significantly reduced the flow of Chinese capital into Indian companies, particularly in the technology sector.

However, diplomatic engagement between the two countries has gradually resumed in recent years.

Context: Improving diplomatic and economic engagement

Officials say the easing of investment rules comes as relations between India and China show signs of gradual improvement following several high-level diplomatic contacts.

In October 2024, Chinese President Xi Jinping met Prime Minister Narendra Modi during the BRICS summit in Kazan, Russia. Diplomatic dialogue and exchanges between the two countries have continued since then.

Direct passenger flights between India and China resumed in 2025, signalling a partial normalisation of ties.

Analysts say the decision to relax investment restrictions may reflect India’s effort to balance security concerns with economic priorities, particularly as the country seeks to expand manufacturing and strengthen its position in global supply chains.

While some regulatory checks remain in place, the revised investment rules are expected to provide greater clarity for foreign investors and could encourage additional capital flows from neighbouring economies.

The long-term impact of the policy shift will depend on investor confidence and the broader trajectory of relations between India and its neighbouring countries.