After a six-year break, India is cautiously opening its doors to China-backed foreign direct investments (FDI). Easing Chinese investment rules will help Indian firms forge partnerships for new technology access to balance imports, reduce India’s trade deficit and widen horizons for FDI sources.
According to recent data, India’s trade deficit with China crossed $100 billion for the first time between April 2025 and February 2026, reaching $102 billion. China is India’s largest trading partner as the latter imports intermediate goods such as electronic components, telecom equipment, machinery and API from it.
The new regulation seeks to ease the imbalance of trade versus investment in India. Chinese FDI in India between 2000 and 2020 was estimated at $2.4 billion or 0.45 percent of the total FDI India got in the period. After the introduction of Press Note 3 (PN3) in 2020, Chinese FDI fell to $67.35 million (0.34 percent of total FDI) in 2021-24.
The Union Cabinet’s decision to allow non-controlling investments from countries sharing land borders with India of up to 10 percent under the automatic route will benefit sectors that have attracted capital from China, including consumer electronics, technology startups, power equipment and infrastructure, and new sectors such as electric vehicles (EVs) and solar components.
The move had deeply impacted investments from global venture capital (VC) and private equity (PE) funds in Indian tech companies. China-based investors, including Tencent Holdings, Steadview Capital, SAIF Partners, Fosun, and strategic investors such as Alibaba Group, Meituan Dianping, Ctrip, Didi Chuxing, Foxconn Technologies and China Lodging Group have funded several startups in India.
Data from Tracxn shows retail, food and agritech, transport and logistics, fintech and enterprise tools to be top sectors that got capital from Chinese VC and PE firms in 2016-25.
The amendment allows for expedited clearance of investment in specific sectors—capital goods manufacturing, electronic goods manufacturing, electronic components, polysilicon and ingot-wafer—within 60 days. In such cases, a majority shareholding of the investee entity should rest with resident Indian citizens or entities.
She adds that India should adopt a risk-calibrated and sector-specific approach, including robust screening mechanisms for funds from sensitive jurisdictions, clear standard operating procedures for approvals and compliance, and prioritise strategic and manufacturing sectors over critical infrastructure areas. “The focus should be on investments that contribute to capacity building while mitigating strategic vulnerabilities.”
First Published: Apr 06, 2026, 17:05
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