Government chief think tank, NITI Aayog, has reportedly put forward a proposal to relax the stringent rules that currently require extensive scrutiny for investments by Chinese companies. Presently, any investment by Chinese entities in Indian firms necessitates a security clearance from both India’s home and foreign ministries.
According to a report in Reuters that quoted government sources, these regulations have led to delays in significant deals. The NITI Aayog has reportedly suggested that Chinese companies be allowed to acquire up to a 24 per cent stake in Indian firms without requiring any approval, as per sources.
This proposal, as reported by the news agency, aims to invigorate foreign direct investment (FDI) in India. It is under review by the trade ministry’s industries department, the finance and foreign ministries, and Prime Minister Narendra Modi’s office.
While some government bodies, including the industries department, are in favour of easing these rules, a final decision might take months, two of the sources indicated.
The current regulations, instated after the 2020 border conflicts between India and China, predominantly affect Chinese firms. These restrictions have led to the shelving of deals like China’s BYD’s $1 billion investment in an electric car joint venture in 2023.
Globally, foreign investment has slowed, exacerbated by geopolitical tensions such as Russia’s invasion of Ukraine. In India, these rules have contributed to a substantial drop in FDI, which fell to a record low of $353 million in the last financial year, compared to $43.9 billion in the year ending March 2021.
Efforts to mend ties between India and China have been underway since an easing in military tensions in October, including plans to resume direct flights and address longstanding border disputes. Foreign Minister S Jaishankar recently visited China, emphasising the need to resolve border issues and eliminate trade restrictions.
Alongside this proposal, NITI Aayog has also recommended overhauling the board responsible for foreign direct investment approvals, aiming to streamline the investment process further.
