India’s central policy think tank NITI Aayog has proposed easing the foreign direct investment (FDI) restrictions imposed on Chinese entities, in a bid to boost dwindling investment inflows, according to a Reuters report citing government sources.
The suggestion would allow Chinese companies to acquire up to a 24% stake in Indian firms without the need for prior security clearances from the Ministry of Home Affairs and Ministry of External Affairs — a significant shift from the current blanket vetting process introduced in April 2020.
That policy change came in the aftermath of the deadly Galwan Valley clash between Indian and Chinese troops, triggering a clampdown on investments from countries sharing land borders with India, particularly affecting Chinese investors.
While NITI Aayog’s recommendations are not binding, the Department for Promotion of Industry and Internal Trade (DPIIT), along with the finance and foreign ministries and the Prime Minister’s Office (PMO), are currently reviewing the proposal.
“Chinese companies can take a stake of up to 24 per cent in an Indian company without any approval being required,” a government official told Reuters.
However, two officials also noted that a final decision lies with the political leadership, and that deliberations may stretch on for months.
The stricter FDI rules have stalled several major Chinese ventures in India, including a $1 billion investment plan by EV giant BYD in 2023, which was shelved due to regulatory bottlenecks.
Though global FDI has slowed due to geopolitical tensions like the Russia-Ukraine war, the plunge in Chinese investments has been especially detrimental to India. Net FDI inflows fell to just $353 million in FY24, compared to $43.9 billion in FY21 — a dramatic drop attributed partly to the freeze on Chinese capital.
NITI Aayog’s move could signal a softening of India’s economic stance toward China, even as the countries cautiously attempt to reset their fragile relationship.