Shift could facilitate Chinese capital, but analysts say uncertainty remains

Indian and Chinese analysts have welcomed the Indian government's decision to ease foreign direct investment rules for countries sharing land borders with it, including China, calling it a proactive step toward enhancing bilateral economic ties. Meanwhile, they also cautioned that the ultimate effects of the policy shift remain to be seen.

The Union Cabinet, chaired by Prime Minister Narendra Modi, approved revisions to guidelines on investments from countries sharing land borders with India, according to a government statement published on Tuesday. Countries sharing such borders with India are Afghanistan, Bangladesh, Bhutan, China, Myanmar, Nepal and Pakistan.

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At the meeting, the cabinet approved changes to Press Note 3 — a policy introduced in April 2020 that requires government approval for foreign direct investment from neighboring countries. The revised rules are expected to support manufacturing in electronic components, capital goods and solar cells, the statement said.

With rules relaxed on Tuesday, two key changes take effect. Investors from bordering countries holding noncontrolling beneficial ownership of up to 10 percent will now qualify for automatic clearance, subject to certain conditions. In addition, authorities will be required to decide on investment proposals within 60 days.

"It will facilitate Chinese investment in high-tech sectors, ... which would significantly contribute to integrating India's manufacturing with global value chains and make India a manufacturing hub," said Rakesh Mohan Joshi, vice-chancellor of the Indian Institute of Foreign Trade.

Prabir De, a professor at the Centre for Maritime Economy and Connectivity at the Research and Information System for Developing Countries in New Delhi, said the relaxation will strengthen India-China economic cooperation.

Santosh Pai, a lawyer advising businesses operating between India and China and a scholar at the Institute of Chinese Studies in New Delhi, said the move "addresses contradictions in India-China economic ties and provides a starting point for the resumption of structured economic dialogue".

"India wants to reduce imports from, and its trade deficit with, China. In exchange, it is offering to permit Chinese investments," he said.

Pankaj Mohindroo, chairman of the India Cellular & Electronics Association, said in a statement that the reform will enable companies to move faster in forming technology partnerships, expanding manufacturing in India and integrating with global value chains.

Lin Minwang, vice-dean of the Institute of International Studies at Fudan University in Shanghai, talked positively of India's partial relaxation of investment restrictions, saying the move reflects a combination of political and economic considerations.

"Since 2020, India, in alignment with the United States, has pursued a policy of 'decoupling' from China. Over the past five years, the crackdown on Chinese enterprises and investors in India has been significant, and it has had a tangible impact on India's foreign direct investment inflows," Lin said.

"India has faced real challenges in attracting foreign investment and sustaining economic growth, providing a rationale for this recent policy shift," Lin explained. Fluctuations in US-India relations under the current US administration, coupled with improved China-India ties, have also shaped the dynamics driving the policy adjustment, he added.

The shift signals a positive move in India's perception, though investment is still not fully open, he said, adding Chinese firms still face restrictions in sectors deemed "sensitive".

"The ultimate effect of these policies remains to be seen. After five years of restrictive measures, Chinese companies are likely to adopt a wait-and-see approach to investing in India," Lin said. "A true turnaround in China-India economic relations may require more time and further policy adjustments."

'Lacking applicability'

The Chamber of Chinese Enterprises in India told the Global Times on Wednesday that India's recent policy adjustments "lack universal applicability". It said no changes have been made regarding large-scale or controlling investments by Chinese capital, and that Chinese investments in many sectors remain subject to rigorous scrutiny.

The foundation of China-India economic cooperation rests on mutual benefit and win-win outcomes, the chamber said. Only transparent, stable and predictable policies can genuinely foster cooperation and generate momentum between enterprises from both countries, it said.

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Last year, Indian Finance Minister Nirmala Sitharaman backed a suggestion by her chief economic adviser, V. Anantha Nageswaran, to reopen India's doors to Chinese investment. Nageswaran had said more foreign direct investment from China could help boost India's export sector and keep the bilateral trade deficit at manageable levels.

Significantly, Tuesday's decision follows a series of steps by India to ease restrictions. Reuters reported in December that New Delhi cut red tape to speed up business visas for Chinese professionals. In February, it began reducing barriers to the purchase of Chinese equipment, which allowed limited imports by state-owned power and coal companies.

Aparajit Chakraborty is a freelance journalist for China Daily.

Contact the writers at yangran1@chinadaily.com.cn