The rules for foreign investment by neighbouring countries - put in place amid the Covid pandemic to protect domestic firms - has finally been relaxed by the government. Sources said the move is an effort to attract investment from China, with which India still has a $99.2 billion per cent trade deficit.
While revising the FDI rules in 2020, the government had said that the revised FDI rule seeks to curb "opportunistic takeovers or acquisitions of Indian companies due to the COVID-19 pandemic".
Read: India Revises FDI Policy To Shield Firms Amid Pandemic
The rules demanded that countries that share border with India -- China, Bangladesh, Pakistan, Nepal, Bhutan, Myanmar, and Afghanistan -get approval from the Central government to invest in India. Prior to that FDI was also allowed through automatic route, for which companies did not need government approval.
Latest Changes
Today, the cabinet eased the strictures, sources said, with hopes of a surge in investment. China's share in FDI investment in India is currently very low -- between April 2000 and December 2025, China accounted for only 0.32 percent of total FDI equity in India, amounting to $2.51 billion.
In a statement today, the government said that the new guidelines will "provide clarity and ease of doing business in India and facilitate investments which can contribute towards greater FDI inflows, access to new technologies, domestic value addition, expansion of domestic firms and integration with global supply chain".
"This would help in leveraging and enhancing India's competitiveness as a preferred investment and manufacturing destination. Increased FDI inflows would supplement domestic capital, support the objectives of Atmanirbhar Bharat, and accelerate overall economic growth," the statement read.
Ties On Positive Track
Relations between India and China - thorny since the 2020 Galwan Valley clash - has been on a positive trajectory.
Read: "Good Neighbours, Friends": China's Xi On India Ties In Republic Day Message
The two nations started improving ties in 2025 with a series of high-level bilateral visits. In October 2024, Chinese President Xi Jinping met Prime Minister Narendra Modi in Kazan, Russia, during the BRICS Summit and the dialogue and exchanges have continued since. Direct flights resumed in 2025 and both countries stepped up trade and investment in the backdrop of US President Donald Trump's foreign policy.
Currently, while the government's moves to ensure data privacy has not been reversed, the bilateral trade has grown greatly. China is India's second-largest trading partner - in 2024-25, imports from China increased to $113.45 billion.
