In a significant policy recommendation, NITI Aayog has proposed that the Indian government consider relaxing foreign direct investment (FDI) norms for Chinese companies, suggesting that entities from countries sharing land borders with India—particularly China—should be allowed to invest up to 24% stake in Indian firms without prior government approval. This move marks a potential shift in India’s current restrictive stance, imposed in April 2020 amid geopolitical and security concerns.
Background: The 2020 Restrictions
Following the India-China border skirmishes, the Indian government had tightened FDI rules, mandating prior government approval for any investment from bordering nations, with China being the primary target of this restriction. The step was intended to prevent hostile takeovers of Indian firms during the COVID-19 pandemic when valuations were low.
Since then, Chinese investments—particularly in sectors like fintech, telecom, and manufacturing—have faced prolonged delays or outright rejections. Even venture capital flows from Chinese investors into Indian startups slowed dramatically, triggering concerns over funding bottlenecks.
NITI Aayog’s Current Proposal
According to internal communications reviewed by officials and reported by Mint, NITI Aayog has floated a proposal recommending a revised threshold of 24% FDI, below which investments from Chinese entities would not require government clearance.
The policy think tank argues this would:
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Streamline investment flows and reduce compliance burden on companies,
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Attract technology and capital, particularly in underfunded sectors,
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Avoid procedural delays for non-controlling minority stakes, especially by global funds with partial Chinese LPs.
Expert Insights
Anurag Tripathi, Senior Partner at TradeMatrix Consulting, commented:
“Allowing passive, non-controlling investments could strike a balance between national security and capital inflows. This will especially benefit startups and manufacturing units that need foreign capital but not strategic control dilution.”
Prof. Meera Sharma, a geopolitical economist at ICRIER, noted:
“India is cautiously opening doors to selective economic cooperation with China, driven by pragmatism. This proposal, if adopted, would indicate a strategic recalibration, not a full reversal.”
Security vs. Growth Trade-off
Government officials maintain that national security remains paramount, and any liberalisation would likely:
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Exclude sensitive sectors such as telecom, defense, and critical infrastructure,
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Be subject to rigorous beneficial ownership disclosures,
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Require sectoral assessments and oversight by DPIIT and Home Ministry.
The broader economic rationale stems from India’s ambition to bolster foreign investment, amid rising global interest in India as a China+1 alternative.
Industry Implications
If the 24% threshold is implemented:
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VC/PE investors with Chinese LPs may see fewer roadblocks in portfolio diversification,
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Fintech, healthtech, and EV sectors could regain access to capital pools previously blocked,
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Multinational firms with minority Chinese shareholders may face fewer hurdles in joint ventures or expansions.
However, the final decision lies with the Prime Minister’s Office and Ministry of Home Affairs, both of which will weigh the proposal against security and diplomatic considerations.
Conclusion
NITI Aayog’s recommendation comes at a time when India seeks to revitalize capital flows without compromising on its strategic interests. The proposed 24% threshold signals a measured, calculated approach toward re-engaging with Chinese capital—conditional, calibrated, and sector-specific. How the government responds could reshape the contours of cross-border investment and economic diplomacy in the coming years.
