India is entering a decisive phase in its economic journey, where FDI policies are no longer limited to security concerns but are increasingly being used as a tool to attract global investors. Recently, the central government introduced significant relaxations in investment rules related to border countries. This change is paving the way for global funds that have a small Chinese stake. As a result, there is renewed hope for momentum in manufacturing and technology transfer in India.
Let us understand this change in detail and what it means for the Indian economy.
What’s Happening?
The Indian government has made an important change in the rules governing foreign direct investment (FDI), which could make it easier for global investors to invest in India. In particular, amendments have been introduced to investment rules related to China and other Land Bordering Countries (LBCs), with the aim of speeding up the investment process.
Under Press Note 3 issued in 2020, all FDI coming from China, Hong Kong, and other neighbouring countries was kept outside the automatic route. This meant that government approval was mandatory for any such investment, regardless of how small the Chinese shareholding was.
The new provision is clear: if an investor from a non-land border country has beneficial ownership from a land border country of less than 10% in the entity and does not hold control, government approval will not be required. This change clearly distinguishes passive investment from strategic investment. Additionally, a fast-track route has been introduced for proposals in certain sectors, allowing approvals within 60 days. Earlier, more than 600 pending applications had accumulated, which can now move to the automatic route. This policy represents a balanced approach that maintains security concerns while making investment easier.
Opportunities Increasing in Electronics and Rare Earth Sector
This change is expected to benefit the electronics and rare earth sectors the most. Proposals in segments such as capital goods, electronic capital goods, electronic components, polysilicon, ingot-wafer, advanced battery components, rare earth permanent magnets, and rare earth materials will now be cleared within 60 days.
India’s electronics production has increased from Rs 1.9 lakh crore in 2014–15 to Rs 11.3 lakh crore in 2024–25, while exports have risen from Rs 38,000 crore to Rs 3.27 lakh crore. However, there is still a shortage of domestic components and specialised materials. The new rule is likely to encourage technology partnerships and strengthen India’s position in the global value chain.
DPIIT Secretary Amardeep Singh Bhatia stated that this change will bring greater certainty to investors and ensure faster processing while maintaining security checks. This will also enable Indian companies to access advanced manufacturing knowledge and gradually reduce dependence on imports.
Solution for Global Funds and Pending Applications
Large institutional investors, including private equity funds, pension funds, and sovereign wealth funds from the United States and Europe, will now find it easier to invest in India. Earlier, many such funds stayed away because some of their limited partners had small Chinese stakes. Under the revised rule, funds with less than 10% beneficial ownership will qualify for the automatic route.
This has eased the path for global players such as BlackRock and Carlyle. DPIIT Joint Secretary Jai Prakash Shivahare clarified that all existing restrictions on investors directly from land border countries remain in place. However, cases where the beneficial ownership from these countries is below 10% in non-land border entities will now face fewer hurdles.
This change could activate nearly 600 pending applications and reduce investment uncertainty. Overall, it represents a practical step towards strengthening India’s ambition of becoming a global manufacturing hub, while also encouraging technology transfer and joint ventures.
What Does This Mean for Investors?
This relaxation provides major relief for global investors with minor Chinese exposure. They will now face less uncertainty and avoid lengthy approval processes. At the same time, Indian companies will find it easier to access both capital and technology.
For electronics manufacturing services providers, the move opens new opportunities for technology partnerships. Ashok Chandak, President of the India Electronics and Semiconductor Association, noted that this provision will encourage global fund participation and increase foreign investment in the manufacturing sector.
Investors can now enter India with greater clarity while security concerns remain safeguarded. The policy is also expected to strengthen the country’s ease of doing business and support long-term growth.
What’s Next?
In the coming years, this policy shift could help India strengthen its position in strategic sectors such as electronics and rare earths. According to the DPIIT Secretary, while global security concerns remain relevant, this calibrated opening will bring greater certainty to investors.
Pending investment plans may finally move forward, and India’s participation in the global value chain could expand further. If the government continues to release standard operating procedures and product category lists, manufacturing investments are likely to accelerate.
Investors who recognise this shift early and adopt a long-term perspective could play an important role in shaping India’s manufacturing future.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
Investments in the securities market are subject to market risks. Read all related documents carefully before investing.
