The change mandated that any investment from countries sharing a land border with India, or where the beneficial owner of an investment into India is situated in or is a citizen of any such country can invest only under the government route. Even transfers of ownership that resulted in such beneficial ownership needed clearance. The move was aimed at preventing opportunistic takeovers of Indian companies during the economic uncertainty caused by covid. The directive applied to seven neighbour ing countries: China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan. It wasn’t lost on the seasoned political observers who the practical target was! Three weeks later, in June 2020, Indian and Chinese troops clashed in the Galwan Valley, sharply escalating tensions. Soon after, India banned several Chinese mobile applications, including Tik Tok, WeChat and UC Browser. A 2023 proposal by BYD to invest USD 1 billion in an electric vehicle joint venture was also reportedly turned down. POLICY RECALIBRATION While the 2020 directive achieved its immediate objective, its broad application created unintended consequences. By covering even non-controlling and non-strategic investments, it disrupted capital flows from global funds, including private equity and venture capital investors with indirect exposure to land-bordering countries. In the changed context where every nation has to face a tariff war of an unprecedented kind, a new response is inevitable. Recognising these challenges, the government in March 2026 has recalibrated the framework. Nearly six years after tightening scrutiny, New Delhi has amended the policy to allow minority ownership structures up to 10 per cent non-controlling stakes from land-bordering countries to come through the automatic route, subject to sectoral con ditions. The revised rules also introduce a 60-day approval window for certain manufacturing investments and provide a clearer definition of “beneficial ownership.” The objective is clear: majority shareholding and control of the Indian investee-company must remain with resident Indian citizens or Indian entities owned and controlled by resident Indian citizens at all times. A PRAGMATIC BALANCE Data underscores the impact of the earlier restrictions. According to the Confederation of Indian Industry, Chinese FDI between 2000 and 2020 stood at USD 2.4 billion, or 0.45 per cent of total inflows. After the 2020 directive, this fell sharply to USD 67.35 million (0.034% of total inflows) between 2021 and 2024. “At the same time, India’s engagement with China inevitably has a strategic dimension. The trade deficit has widened to over USD 100 billion, with significant dependence on Chinese imports in critical sectors such as electronics, machinery and components for green technologies,” CII said. “ Addressing this imbalance requires diversification of supply chains and stronger domestic man facturing, alongside carefully structured investment partnerships that promote local production, technology transfer and export capacity” it added. The revised FDI policy reflects a pragmatic shift. It appears to be guided by practical wisdom while going in for a recalibration of its approach to Chinese investments. It signals a more nuanced approach to foreign investment by aligning policy with both geopolitical realities and long-term growth imperatives.
