Government Set to Announce FEMA Amendments Affecting Foreign Companies with Up to 10% Chinese Ownership
The Indian government is poised to announce significant changes to the Foreign Exchange Management Act (FEMA), aimed at facilitating foreign direct investment (FDI) from companies with up to 10 percent Chinese ownership. A senior official confirmed that these revisions, approved by the Union Cabinet in March, will allow such investments through an automatic route across various sectors. However, this relaxation will not extend to entities registered in China, Hong Kong, or any neighboring countries sharing a land border with India. The Department of Economic Affairs (DEA) is expected to issue the necessary notification soon.
New FDI Framework and Its Implications
The upcoming changes under FEMA will enable foreign companies with a minor Chinese stake to invest in India without undergoing extensive scrutiny. This move is part of a broader strategy to enhance foreign investments in the country. The Union Cabinet’s approval of amendments to Press Note 3 of 2020 marks a pivotal shift in India’s investment landscape. The new framework is designed to streamline the investment process, allowing for quicker approvals in specific manufacturing sectors. This includes capital goods, electronic components, and polysilicon, among others. The government aims to process these investment applications within 60 days, thereby encouraging more foreign entities to consider India as a viable investment destination.
Despite the DPIIT having already notified some changes, the final notification from the DEA is still pending. Officials emphasize the importance of fine-tuning the details before the new regulations come into effect. This initiative reflects the government’s commitment to attracting foreign capital while balancing national security concerns regarding investments from countries with which India shares borders.
Growth in Foreign Direct Investment
Recent data indicates a robust increase in foreign direct investment in India. Total FDI, including reinvested earnings, surged to USD 88.29 billion during the period from April to February of the 2025-26 fiscal year, compared to USD 80.61 billion in the previous year. Notably, net FDI saw a remarkable rise, reaching USD 6.26 billion during the same timeframe, a significant jump from USD 959 million in the entirety of the 2024-25 fiscal year. DPIIT Secretary Amardeep Singh Bhatia projected that overall FDI inflows could reach USD 90 billion by the end of the current fiscal year, attributing this growth to various reform measures and free trade agreements.
The government’s efforts to create a favorable investment climate are evident in the activities of Invest India, the national investment promotion agency. During the 2025-26 fiscal year, Invest India facilitated the grounding of 60 projects valued at over USD 6.1 billion, which are expected to generate more than 31,000 jobs across 14 states. This influx of investment underscores the confidence that international investors have in India’s regulatory framework and manufacturing capabilities.
Sectoral Insights and Future Prospects
The sectors attracting the most significant investments include chemicals, pharmaceuticals, biotechnology, and food processing, which collectively account for approximately 65 percent of the grounded investments. High-value projects in these areas have driven this trend, showcasing India’s potential as a hub for advanced manufacturing and innovation. Additionally, sectors such as electronics system design, aerospace and defense, and electric vehicles are also witnessing considerable activity, reflecting a diverse investment landscape.
Invest India’s Managing Director and CEO, Nivruti Rai, highlighted the agency’s focus on attracting higher inflows from 11 targeted countries. The participation of major economies like the United States, Japan, and South Korea, along with emerging markets such as Brazil and Canada, indicates a diversification of India’s investment base. This broad interest is a testament to the policy clarity and institutional commitment that the Indian government has demonstrated, fostering a conducive environment for global investors.
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