India’s decision to ease foreign direct investment (FDI) norms for overseas firms with minor Chinese shareholding has unlocked 29 investment proposals worth Rs 4,895.65 crore since coming into effect, a government official said.
The policy shift, notified by the Finance Ministry under the Foreign Exchange Management Act (FEMA) on May 1, allows foreign companies with up to 10% shareholding from countries sharing a land border with India, including China, to invest through the automatic route without prior government clearance.
The investments span key high-growth sectors such as artificial intelligence, information technology, data centres, pharmaceuticals, manufacturing and transport services. The capital inflows have originated from the US, Singapore, Mauritius, South Korea, Japan, Luxembourg and the Cayman Islands.
Under the earlier Press Note 3 (2020) framework, any foreign company with even a single share held by an entity from a land-bordering country was required to seek government approval. The measure was introduced during the Covid-19 pandemic to prevent opportunistic takeovers of Indian companies amid a sharp fall in valuations.
Under the revised rules, foreign entities with up to 10% Chinese or Hong Kong shareholding can invest directly in sectors permitted under the automatic route, subject to standard sectoral conditions and post-investment reporting.
The relaxation does not apply to entities directly registered in China, Hong Kong or other land-bordering countries — Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. Direct investments from these jurisdictions continue to require government approval.
Officials said the revised framework significantly reduces transaction timelines, provides greater regulatory certainty to global institutional funds with indirect Chinese limited partners (LPs), and improves India’s ease of doing business.
The government has also introduced 60-day clearance for investments from land-bordering countries in sectors including capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer manufacturing, advanced battery components, and rare-earth permanent magnets and processing.
In these cases, the majority shareholding and control of the investee entity must remain with resident Indian citizens and/or entities owned and controlled by resident Indian citizens.