The government is considering a proposal to exempt foreign funds with Chinese investments below a specified threshold from the elaborate scrutiny mandated under Press Note 3 (PN3), Commerce and Industry Minister Piyush Goyal told FE on Friday.
“There is a thought before us on whether we could have a de minimis threshold. There are many international funds that may have a small 1–5% Chinese investment in a large fund and want to invest in India. They also have to go through an elaborate process under PN3, and time is lost,” Goyal said in an interview.
He added that the government remains open to reviewing the policy. “This is a listening government. We are always open to new ideas. We are engaging with all stakeholders to make it easier to do business and attract investments. All options are being explored, and decisions will be taken in the national interest,” he said.
Any such move would mark a significant relaxation of PN3, which was introduced in April 2020 at the height of the Covid-19 pandemic. The rule added an additional layer of security scrutiny for investment proposals from countries sharing land borders with India.
Manufacturing Growth Intent
The proposed easing signals the government’s intent to stem persistent capital outflows and tap sustained investor interest linked to China, particularly in sectors such as renewable energy, e-commerce, automobiles, real estate and electronics.
Officials also believe a more flexible approach could encourage the flow of critical minerals and industrial inputs from China, supporting India’s push to upgrade and expand its manufacturing base, especially in high-tech and emerging sectors such as semiconductors, renewable energy, electric vehicles and artificial intelligence.
On India’s expanding network of free trade agreements (FTAs), including the recently concluded pact with the European Union, Goyal said global engagement is essential for India’s ambition to become a developed nation by 2047. “No country in the world has become developed without engaging with the rest of the world for trade and investment,” he said.
“Under Prime Minister Narendra Modi, we have entered into eight FTAs, all with developed countries, covering 37 developed economies,” Goyal said, adding that the EU agreement is expected to deliver substantial gains and has been welcomed by industry as a catalyst for the setting up of hundreds of new factories.
“India has earned its rightful place at the global high table. The world sees India as an important player, backed by decisive leadership and political stability,” he said.
Since PN3 came into force, foreign direct investments where the ultimate beneficial owner is a Chinese entity have required prior government approval following detailed scrutiny. While investments have not stopped altogether, the policy has slowed inflows and constrained the scale of Chinese investments.
At one stage, Beijing expressed its displeasure by imposing curbs on exports of certain critical minerals to India.
Addressing Capital Scarcity
PN3 was introduced at a time when company valuations had fallen sharply worldwide following the outbreak of Covid-19, with the stated objective of preventing opportunistic takeovers of Indian firms. Analysts have since argued that the restriction has had adverse consequences, particularly for a capital-scarce economy like India, and has impeded technology inflows.
In practice, several Chinese firms have received approvals even after PN3 was implemented, reflecting India’s continued need for investment, technology and scale in key sectors.
China accounts for over 30% of global manufacturing output and dominates emerging areas such as electronics, advanced semiconductors, critical minerals, electric vehicles and advanced materials — sectors in which India is also seeking to build capacity, backed by substantial government support.