India Cautiously Reopens Door To China

India has moved to partially reopen a channel for investment from neighbouring countries, including China, after a six-year pause, in a measured policy shift aimed at correcting a widening imbalance between trade and capital flows. The change allows non-controlling investments of up to 10 per cent under the automatic route, signalling a calibrated relaxation rather than a wholesale reversal.

The adjustment follows a period in which India’s commercial dependence on China deepened while inbound capital from that source remained limited. Between April 2025 and February 2026, India’s trade deficit with China crossed $100 billion for the first time, reaching $102 billion, according to the article. China remains India’s largest trading partner, with India importing intermediate goods such as electronic components, telecom equipment, machinery and active pharmaceutical ingredients. Against that backdrop, the new regulation is intended to address the mismatch between the scale of bilateral trade and the modest level of investment entering India.

The figures cited in the report underline that disparity. Chinese foreign direct investment into India between 2000 and 2020 was estimated at $2.4 billion, or 0.45 per cent of the total FDI received during that period. After Press Note 3 was introduced in 2020, Chinese FDI fell further, to $67.35 million, or 0.34 per cent of total inflows, across 2021 to 2024. Experts quoted in the article say that easing the rules could help Indian companies form partnerships that provide access to new technology, broaden funding sources and support efforts to reduce the trade deficit.

The policy change is also notable for the sectors it could affect. Areas that have previously attracted capital from China include consumer electronics, technology start-ups, power equipment and infrastructure. The report adds that electric vehicles and solar components may also benefit under the revised framework. The historical context remains important, however. On April 17, 2020, India amended its FDI policy through Press Note 3, requiring investments from countries sharing land borders with India to take the government route, a move designed to prevent opportunistic acquisitions during the Covid-19 pandemic. That safeguard has not disappeared entirely, and the present opening remains limited to minority stakes, leaving the full extent of India’s willingness to expand the framework unresolved.