India has quietly eased its resistance to Chinese investment, with the cabinet on 10 March approving a revision to foreign direct investment (FDI) rules that had been tightened after the 2020 India‑China border clashes. The new Press Note 2, 2026 — an amendment to Press Note 3, 2020 — allows non‑controlling equity stakes of up to 10 per cent in Indian companies from investors in China and other neighbouring countries without prior government approval, and creates a 60‑day expedited approval track for investments in priority manufacturing sectors such as electronics, capital goods and solar cells.
The 2020 measures were introduced in the immediate aftermath of the Galwan Valley skirmishes and the ensuing military standoff, when New Delhi moved to block or more tightly scrutinise inbound capital from China on national security and political grounds. But bilateral trade with Beijing continued to grow in the years that followed, with China emerging as India’s second‑largest trading partner. Officials and analysts say the latest change acknowledges the limited direct role China has historically played in India’s FDI picture while seeking to harness Chinese manufacturing capacity for India’s industrial ambitions.
Data cited by officials underline that reality: between April 2000 and December 2025, only about US$2.5 billion of equity inflows into India were recorded as originating from China — roughly 0.3 per cent of total equity inflows and placing China near the lower end of investor rankings. Where the 2020 restrictions did bite was in indirect channels: venture capital and private equity funds with Chinese connections found their India exposure constrained by tighter screening and optics-driven policy.
The policy shift comes despite repeated public scepticism from parts of the government. In July 2024, Commerce Minister Piyush Goyal said there would be no rethink on Chinese investment, a stance he reiterated the following year. Those statements reflected a political sensitivity that has often clashed with economic arguments favouring a pragmatic China+1 approach — where companies keep production in China but add capacity in other countries to diversify supply chains. India’s Economic Survey had urged policymakers to consider welcoming Chinese investment into export‑oriented manufacturing so that India could capture some of the re‑routing of global supply chains away from the mainland.
Press Note 2, 2026 is carefully calibrated: the 10 per cent allowance is limited to non‑controlling stakes, and the 60‑day fast‑track applies only to designated priority manufacturing sectors. Government sources and independent analysts say the tweak could materially raise China’s share of Indian FDI — with some estimations suggesting Beijing-linked capital could reclaim around a two per cent share of total inflows if the new rules boost investor confidence. New Delhi is explicitly hoping the change will help attract manufacturing relocation from Southeast Asia as global buyers seek alternatives to China.
However, the move will not instantly reconfigure regional manufacturing patterns. ASEAN neighbours remain entrenched in electronics, electric vehicle components and battery supply chains: Vietnam’s electronics exports alone reached about US$165 billion in 2023, accounting for roughly 41 per cent of the country’s total exports, while Thailand and Malaysia continue to host major EV and semiconductor investment. Indian officials acknowledge that attracting high‑tech assembly and component plants will require more than relaxed FDI thresholds — improvements in infrastructure, incentives, and supply‑chain linkages will be needed.
For now, Press Note 2, 2026 represents a cautious policy pivot that attempts to balance national security concerns with the economic imperative of building higher value manufacturing at home. How quickly and how much it changes investment flows will depend on the implementation details of the expedited approvals, the screening framework that remains in place for sensitive sectors, and whether global manufacturers see India as a competitive, reliable alternative to established hubs in Southeast Asia.