Reform panel moots easing restrictions on investments from China

A high-level committee headed by NITI Aayog member Rajiv Gauba has recommended that the government either withdraw restrictions on investments from China or consider calibrated easing of curbs, people aware of the matter said.

 

The panel, in an internal report finalised in October, had suggested that the Department for Promotion of Industry and Internal Trade (DPIIT) weigh the options and take a final call by December 31. The decision may result in an overhaul of India’s approach to investments from China. Boosting foreign investment from China can also help India in integrating with global value chains and boost exports to the neighbouring country.

 

The report of the ‘high-level committee on non-financial regulatory reforms’ has suggested two options. One option is to withdraw the “Press Note 3”, which would mean no restrictions on foreign direct investment (FDI) from countries sharing land border with India, including China, one of the persons cited above told Business Standard.

 

The NITI Aayog did not respond to queries sent by Business Standard.

 

Instead of withdrawal of the Press Note 3, the other option, according to the committee, is to relax the restrictions by allowing investment proposals where the beneficial ownership is less than 10 per cent. This means that an investor from China or any country sharing a land border with India and holding 10 per cent in the firm will be allowed to make investment. Towards this, the definition of beneficial owner, with a minimum threshold of at least 10 per cent, has to be introduced, the person cited above said.

 

The panel has also proposed allowing China and other countries sharing land border to invest up to 49 per cent cumulatively in non-strategic sectors, subject to approval by a committee headed by the Cabinet Secretary. However, the largest shareholder in the Indian investee company needs to have a dominant Indian control.

 

Under the FDI policy, strategic sectors include telecom, power, space, defence, petroleum and space or sectors crucial for national security.

 

The Economic Survey, presented in July 2024, proposed a two-dimensional strategy to benefit from China-Plus One, either by integrating into China’s supply chain or by promoting foreign direct investment (FDI) from China, calling FDI “advantageous”.

 

Known as the ‘Press Note 3’, India’s position was revised in April 2020 for ‘curbing opportunistic takeovers/acquisitions’ of domestic firms, considering their financial stress due to the pandemic. The move, however, was mainly targeted to restrict investments from China, amid tensions at the border. Before April 17, 2020, investments from China could proceed without any prior government approval – also known as the automatic route.

 

Under the current FDI regulations, prior government approval is mandatory in case any investment proposal is from a country that shares land border with India – China, Bhutan, Nepal, Bangladesh, Pakistan, Afghanistan, Myanmar – and includes cases where the investor is from one of these countries.

 

Last year, the economic survey proposed a two-pronged approach to benefit from the ‘China-Plus One’ strategy – either by integrating into China’s supply chain or by encouraging FDI from China.

 

“India faces two choices to benefit from ‘China-Plus One’ strategy: it can integrate into China's supply chain or promote FDI from China. Among these choices, focusing on FDI seems more promising for boosting India's exports to the US, similar to how East Asian economies did in the past. Moreover, choosing FDI to benefit from the ‘China-Plus One’ approach appears more advantageous than relying on trade,” it had said.

 

According to government data, during the calendar year 2025 (January-June), FDI from China stood at $0.91 million vis-a-vis $28 million inflow during the same period last year. 

On the table

 

• The NITI Aayog panel, in an internal report finalised in October, made two suggestions to the government  Option 1: Withdraw ‘Press Note 3’ to allow FDIs from countries sharing land borders with India  Option 2: Allow investment proposals where beneficial ownership is less than 10% 
• It also proposed allowing nations sharing land border to invest up to 49% in non-strategic sectors