FDI Easing Under Press Note 3 Does Not Allow Direct Chinese Investments, Government Clarifies

The government has clarified that the recent easing of foreign direct investment (FDI) rules under Press Note 3 does not allow direct investments from Chinese companies, even as global investors with limited Chinese shareholding are now permitted to invest through the automatic route.

Officials from the Department for Promotion of Industry and Internal Trade (DPIIT) said on March 12 that global entities with up to 10% shareholding from investors in countries sharing land borders with India can invest under the automatic route, provided the stake is non-controlling and complies with sectoral caps.

According to Reuters, entities registered in China, Hong Kong, or other land-border countries will continue to require prior government approval before making any investments in India.

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Government Clarifies Scope Of Policy Change

DPIIT Joint Secretary Jai Prakash Shivahare said the policy relaxation applies only to global firms that have minority shareholding from land-border countries.

He stated that all restrictions applicable to investors from land-bordering countries remain in place. The easing only applies to companies registered in non-land-border countries where beneficial ownership from such countries remains below 10% and does not provide controlling rights.

Shivahare added that if an entity from a land-border country holds even a 1% stake and exercises any form of control through technology or management influence, the investment proposal will still require approval through the government route.

Background Of Press Note 3

Press Note 3 was introduced on April 17, 2020, during the COVID-19 pandemic to prevent opportunistic takeovers of Indian companies facing financial stress.

The rule mandated that any investment from countries sharing land borders with India must receive prior government approval. The restriction primarily affected investments from China amid border tensions.

Before April 2020, Chinese investors were allowed to invest in India through the automatic route without mandatory government approval.

DPIIT Secretary Amardeep Singh Bhatia said several global investment firms had requested a review of the policy framework. According to government officials, large investment firms such as BlackRock and Carlyle had raised concerns regarding the restrictions.

Fast-Track Mechanism For Select Sectors

The government has also introduced a defined timeline for processing investment proposals in certain sectors. Applications involving investors from land-border countries in selected industries will now be processed within 60 days.

The sectors include advanced battery components, rare earth permanent magnets, rare earth processing, capital goods, electronic capital goods, electronic components, and polysilicon and ingot-wafer manufacturing.

Officials said the list of sectors may be expanded or reduced by a committee of secretaries headed by the Cabinet Secretary.

According to government data cited by Reuters, around 600 FDI proposals are currently pending under Press Note 3 for review and approval.

The amendments to the policy will come into effect after formal notification by the DPIIT and the Ministry of Finance. Officials said that while the process may become faster for certain sectors, security and political clearances related to investments from land-border countries will continue to apply under the existing framework.