India modified its Foreign Direct Investment (FDI) policy on May 6, 2026 by issuing Press Note 2 (2026 Series), partially relaxing restrictions imposed through Press Note 3 (2020). The key change: overseas companies with up to 10% Chinese or Hong Kong shareholding — without having “control” over the company — may now invest in India through the automatic FDI route (i.e., without prior government approval). A 12-week processing timeline for government-route applications was also mandated.
The Policy Change — What Changed
Before (Press Note 3, 2020)
Any entity from a land-border country (including China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, Afghanistan) — or beneficially owned by such an entity — required prior government approval regardless of shareholding percentage.
No distinction between “control” and “passive minority shareholding.”
After (Press Note 2, 2026 Series)
Scenario
Route
Chinese/HK shareholding ≤10% + no control
Automatic route (no approval needed)
Chinese/HK shareholding >10% OR with control
Government approval route (as before)
Other land-border countries (Pakistan, Bangladesh, etc.)
Government approval route (unchanged)
Multilateral banks / AIIB
Exempt from land-border restrictions (new)
“Control” definition: Per PMLA (Prevention of Money Laundering Act) 2002 — holding more than 10% beneficial ownership = controlling interest.
Why India Eased the Norms
Reason
Explanation
Attract investment
India competes with Vietnam, Mexico, Indonesia for “China+1” manufacturing investments; over-restrictive rules deterred third-country investors with minor Chinese stakes
Manufacturing push
Electronics, EV batteries, solar panels, semiconductors need global investors — many of whom have minority Chinese shareholding
AIIB inclusion
Multilateral Development Bank logic: AIIB (China-led) has 57-country membership; excluding it from India undermined multilateral financing
PLI scheme investors
Several PLI beneficiaries had minor China-linked investors blocked due to PN3
China–India FDI Context
Parameter
Value
China’s FDI in India
USD 2.51 billion (cumulative to December 2025)
China’s share of India’s total FDI
0.32%
China’s rank among investor nations
23rd
Top investor countries in India
Mauritius, Singapore, USA, Netherlands, Japan
Press Note 3 (2020) trigger
China’s PBOC acquired ~1% stake in HDFC during COVID-19 (2020); India feared opportunistic acquisitions
Land-Border FDI Policy Framework
India’s land-border FDI restriction applies to:
Country
Status
China
Government route (prior approval) — partial relaxation via PN2 2026
Pakistan
Government route (virtually no FDI approved)
Bangladesh
Government route
Nepal
Government route
Bhutan
Government route
Myanmar
Government route
Afghanistan
Government route
Multilateral banks (AIIB, NDB)
Exempt from land-border rules (new, 2026)
FDI Framework — Key Concepts
Concept
Detail
Automatic route
FDI allowed without prior RBI/government approval up to sectoral caps
Government route
Prior approval of FIPB (now replaced by DPIIT/respective ministries) required
DPIIT
Department for Promotion of Industry and Internal Trade — nodal body for FDI policy
This content was researched and written in collaboration with Claude AI (Anthropic). Key facts are verified against web sources before publishing — but errors can occasionally slip through. If you spot something incorrect, our team wants to fix it immediately.
