Union Cabinet has approved changes to the foreign direct investment (FDI) policy governing investments from countries sharing land borders with India, including China, by amending Press Note 3 of 2020. Govt introduced a 60-day decision timeline for proposals in certain manufacturing sectors and clarifying rules around beneficial ownership.The decision, seeks to streamline investment approvals under Press Note 3 (PN3) while maintaining safeguards on strategic investments from land-bordering countries.Under Press Note 3 introduced in 2020, foreign companies with shareholders from countries sharing land borders with India were required to obtain mandatory government approval for investments in any sector.Countries that share land borders with India include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan.Under the revised framework, the government has defined criteria for determining ‘beneficial owner’, aligning it with definitions used under the Prevention of Money Laundering Rules, 2005. The beneficial ownership test will be applied at the level of the investor entity, according to an official statement.The policy also allows investors with non-controlling beneficial ownership of up to 10% from land-bordering countries to invest under the automatic route, subject to sectoral caps and applicable conditions. Such investments will require disclosure of relevant information by the investee entity to the Department for Promotion of Industry and Internal Trade (DPIIT).The Cabinet has also introduced an expedited approval mechanism, under which proposals for investments from these countries in specific manufacturing sectors will be processed within 60 days.The sectors covered under the fast-track approval include capital goods manufacturing, electronic capital goods, electronic components, polysilicon and ingot-wafer manufacturing.Officials said the move aims to facilitate technology partnerships and manufacturing collaborations, enabling companies to enter joint ventures, access global technologies and integrate with international supply chains.In such investments, majority ownership and control of the investee entity must remain with resident Indian citizens or Indian entities owned and controlled by resident Indian citizens at all times, the government said.The amendments are intended to unlock greater FDI inflows from global funds into startups and deep-tech sectors while also advancing the government’s ease-of-doing-business agenda.The government had earlier tightened FDI norms through Press Note 3 in April 2020, requiring investments from countries sharing land borders with India –including China — to receive prior government approval. The move was introduced to prevent opportunistic takeovers of Indian companies during the Covid-19 pandemic.However, authorities said the PN3 restrictions were also affecting investment flows from global private equity and venture capital funds, particularly where investors from such countries held minor, non-strategic stakes. The revised policy seeks to address those concerns while retaining oversight over sensitive investments.China currently ranks 23rd among investors in India, accounting for about 0.32% share ($2.51 billion) of the total FDI equity inflows received by the country between April 2000 and December 2025, according to PTI.Economic relations between India and China came under strain after the Galwan Valley clash in June 2020, which marked the most serious military confrontation between the two countries in decades.Following the tensions, India banned more than 200 Chinese mobile applications, including TikTok, WeChat and Alibaba’s UC Browser.Although FDI inflows from China have remained limited, bilateral trade between the two countries has expanded significantly, with China emerging as India’s second-largest trading partner.In 2024–25, India’s exports to China declined 14.5% to $14.25 billion from $16.66 billion in 2023–24, while imports rose 11.52% to $113.45 billion compared with $101.73 billion in the previous year. As a result, the trade deficit widened to $99.2 billion in 2024–25 from $85 billion in 2023–24.During April–January 2025–26, India’s exports to China increased 38.37% to $15.88 billion, while imports rose 13.82% to $108.18 billion, resulting in a trade deficit of $92.3 billion, according to official data
