Prime Minister Narendra Modi’s cabinet approved changes to foreign direct investment (FDI) rules that had previously restricted investments from China and other land‑bordering countries
India on Tuesday approved easing restrictions on Chinese investments in select sectors, aiming to ease a capital squeeze and signal a reset in economic ties after six years of tension.
Prime Minister Narendra Modi’s cabinet approved changes to foreign direct investment (FDI) rules that had previously restricted investments from China and other land‑bordering countries.
Under the new rules, Chinese firms will now be allowed to invest in electronics, capital goods, and solar cell sectors, according to a Reuters report, citing an official statement.
New Delhi had tightened scrutiny of investments from Chinese companies in 2020, after relations between the two nuclear-armed neighbors soured following clashes on their largely undemarcated Himalayan frontier that left 20 Indian and four Chinese soldiers dead.
Since then, Chinese investments in Indian companies required security clearance from a panel comprising India’s home and foreign ministries. The restrictions led to the shelving of several deals, including a 2023 plan by China’s BYD to invest $1 billion in an electric car joint venture.
The recent easing of FDI rules is expected to encourage Chinese firms to manufacture in India rather than simply export components or finished products. India’s trade deficit with China hit $99 billion in FY25, driven largely by imports of electronics, machinery, and components.
Industry demands were a key factor behind the move, as the 2020 curbs had constrained manufacturers relying on Chinese technology and capital.
India’s policy think tank, NITI Aayog, noted last year that the restrictions delayed several large deals and recommended allowing Chinese companies to hold up to a 24% stake in Indian firms without special approvals, according to Reuters.
A global economic realignment, accelerated by US tariffs, has also prompted India to consider a calibrated reset with China to stabilize supply chains and attract investment.
PM Modi visited China in August, his first trip in seven years, and met Chinese President Xi Jinping to discuss improving ties.
Since then, India and China have resumed direct flights, eased visa procedures for Chinese business professionals, and lifted restrictions on procurement of Chinese equipment by state-run power and coal companies, Reuters reported last month.
With inputs from agencies
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