Chinese President Xi Jinping and Indian Prime Minister Narendra Modi meet on the sidelines of the BRICS summit in Kazan, Russia, on Oct. 23, 2024.
China Daily via Reuters
India is easing rules that will allow Chinese investments into the country, in a move that marks New Delhi’s push to reset economic ties with Beijing after nearly six years of friction.
The Indian cabinet has approved changes to its foreign direct investment policy, allowing investments from “Land Bordering Countries” in manufacturing of electronic components, capital goods and solar cells, the government said in a release on Tuesday.
While India shares borders with China, Pakistan, Nepal, Bhutan, Bangladesh and Myanmar, the restrictions were primarily aimed at limiting investments from China — the only major economy sharing its border with India.
Beijing-New Delhi ties had soured in 2020 following the deadly border skirmish in the Galwan Valley, and India had tightened investment rules the same year.
Under the new rules, Chinese investments in Indian companies will be expedited and processed within 60 days as long as the ownership of the firms stays with Indian shareholders, the note said.
The rules also permit Chinese companies to acquire up to 10% stake in Indian businesses without seeking New Delhi’s approval.
“Allowing limited Chinese participation in India’s manufacturing ecosystem could make it easier for [multinational] companies to shift final assembly to India while maintaining access to Chinese inputs,” said Arpit Chaturvedi, South Asia advisor at Teneo.
He added that this will reinforce India’s “attractiveness within China-plus-one strategies” of multinational companies that are looking to diversify supply chains away from China.
For the past six years, attempts by Chinese companies to invest in India had been thwarted by a web of security clearances from India’s foreign and home ministries.
The Indian government in its note has said that these restrictions were “adversely affecting investment flows from investors including global funds such as PE/ VC funds” especially in cases where investors held a “non-strategic, non-controlling interests.”
Effective reset?
India is also hoping that the changes will improve the ease of doing business and will usher greater investment inflows from global funds for startups and deep tech companies.
“I would read this as a pragmatic recalibration rather than a structural reset in India–China relations,” Reema Bhattacharya, head of Asia risk insight, corporate risk and sustainability at Singapore-based business advisory firm Verisk Maplecroft.
However, some experts are skeptical of impact of New Delhi’s regulatory changes on investments as border tensions between India and China remain unresolved and the broader geostrategic competition between the two persists.
“I wouldn’t expect a flood of Chinese capital into India,” said Bhattacharya of Verisk Maplecroft.
While the policy has signaled easing, Bhattacharya said that Chinese companies will still factor in the risk that investment rules can tighten again if bilateral tensions flare up.
“The easing reflects economic pragmatism at a time when both countries are navigating a more fragmented global order, but the deeper strategic mistrust has not disappeared,” she said.
The two major global economies have been slowly working towards improving ties since last year. After the U.S. imposed 50% tariffs on India in August last year, Indian Prime Minister Narendra Modi made his first visit to China in seven years to attend the Shanghai Cooperation Organization summit.
Since then, the two countries have taken several measures aimed at normalizing relations, including restarting flights and disengagement of troops at the border.
Chinese Foreign Minister Wang Yi on Sunday said New Delhi and Beijing should “support each other’s BRICS presidency over the next two years” to “bring new hope to the Global South.”
