India Simplifies FDI Regulations for Companies with Up to 10% Chinese Ownership
The Department for Promotion of Industry and Internal Trade (DPIIT) has announced significant changes to India’s foreign direct investment (FDI) policy, allowing overseas companies with up to 10 percent Chinese shareholding to invest in India through an automatic route. This new regulation, however, does not extend to entities based in China, Hong Kong, or other neighboring countries. Previously, any foreign investment linked to these nations required mandatory government approval, a measure introduced to safeguard against potential opportunistic takeovers during the COVID-19 pandemic.
New Investment Guidelines
Under the revised FDI policy, the DPIIT has clarified that the term “beneficial owner” refers to the actual owner of an investment from an entity incorporated outside countries sharing a land border with India. This definition aligns with the Prevention of Money-laundering Act (PMLA) of 2002, which stipulates that a controlling ownership interest is defined as holding more than 10 percent of shares, capital, or profits in a company. The new guidelines aim to streamline the investment process while ensuring that investments from entities with any ownership links to citizens or firms from bordering nations adhere to additional reporting requirements.
Impact of the Changes
The decision to relax these investment norms was approved by the Union Cabinet last week. This move comes after the government had tightened FDI regulations through Press Note 3 in April 2020, which was aimed at preventing hostile takeovers of Indian companies during the pandemic. The earlier restrictions had a significant impact on investment flows, particularly from global private equity and venture capital funds that had minority shareholding from Chinese or Hong Kong entities. By easing these regulations, the government hopes to attract more foreign investment and stimulate economic growth.
Expedited Approval Process
In addition to the new investment guidelines, the DPIIT has introduced an expedited approval mechanism for FDI proposals from countries with land borders with India. This process will have a 60-day timeline for consideration, which is expected to facilitate quicker investment decisions. Countries sharing borders with India include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan. This initiative aims to enhance the investment climate in India and encourage foreign investors to explore opportunities in various sectors.
Current FDI Landscape
As of now, China ranks 23rd in terms of FDI equity inflows into India, contributing only 0.32 percent of the total share, which amounts to approximately USD 2.51 billion from April 2000 to December 2025. The changes in the FDI policy are anticipated to improve this standing by making it easier for foreign companies with limited Chinese ownership to invest in the Indian market. The government’s efforts to balance security concerns with the need for foreign investment reflect a strategic approach to fostering economic growth while safeguarding national interests.
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