India Relaxes FDI Rules for China, Neighbouring Nations

• India eases FDI norms for countries sharing land borders, including China, under the amended Press Note 3 of 2020
• China contributes only 0.32% of India’s FDI but remains the second-largest trading partner
• In 2024–25, India’s trade deficit with China widened to $99.2B

The government has relaxed foreign direct investment norms for countries that share land borders with India, including China, by amending Press Note 3 of 2020, according to government sources. The Union Cabinet meeting which Prime Minister Narendra Modi chaired approved the move.

Press Note 3 required foreign companies with shareholders from neighboring countries which included China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan to obtain government approval before they could invest in any sector.

China currently ranks 23rd among investors in India because it has delivered only 0.32 percent of total FDI equity inflows which equals 2.51 billion dollars between April 2000 and December 2025.

The economic relationship between India and China experienced difficulties following the Galwan Valley clash which took place in June 2020 and marked the most serious military confrontation between the two countries in decades.

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India imposed a ban on more than 200 Chinese applications which included TikTok and WeChat and Alibaba's UC Browser. China continues to be India's second biggest trading partner because bilateral trade has grown despite the country receiving only minimal foreign direct investment.

India's exports to China decreased by 14.5% in 2024-25 bringing total exports down to $14.25 billion from $16.66 billion which existed in 2023-24. Meanwhile, import duties increased by 11.52% bringing total goods entering the country to $113.45 billion. This development resulted in the trade deficit expanding from $85 billion to $99.2 billion.

The period between April and January 2025-26 saw export growth of 38.37% to total $15.88 billion, while import activities increased by 13.82% to reach $108.18 billion, which created a trade deficit of $92.3 billion, as shown by official records. The new foreign direct investment regulations will simplify the process of obtaining investment approvals while maintaining important security and economic needs.