FDI Update - Press Note 3 Amended | Government Relaxes FDI Investments From China

The Union Cabinet has approved a relaxation of Foreign Direct Investment (“FDI”) norms applicable to investments from countries sharing land borders with India, amending the framework introduced under Press Note 3 (2020 Series) issued by the Department for Promotion of Industry and Internal Trade (“DPIIT”). The decision, taken at a Cabinet meeting chaired by the Prime Minister, signals a potential shift in India’s approach towards investments originating from neighbouring jurisdictions that were previously subject to heightened regulatory scrutiny.

Introduction

Press Note 3 of 2020 was introduced in the backdrop of geopolitical tensions and concerns regarding opportunistic acquisitions of Indian companies during the COVID-19 pandemic. The policy required any entity from a country sharing a land border with India, or any investment where the beneficial owner was situated in such a country, to obtain prior Government approval before investing in India.

The rule applies to seven neighbouring jurisdictions, namely China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan, and effectively moved such investments from the automatic route to the government approval route across sectors. The Cabinet’s recent decision indicates a calibrated relaxation of these restrictions, with the objective of balancing national security considerations with investment facilitation and economic engagement.

Background and Regulatory Context

Following the introduction of Press Note 3 in 2020, investments from land-bordering countries were subjected to enhanced regulatory scrutiny. The measure was widely viewed as a safeguard against potential strategic or opportunistic takeovers of Indian companies during a period of economic vulnerability.

Subsequent geopolitical developments further reinforced the cautious regulatory approach towards investments from certain neighbouring jurisdictions. During this period, India also imposed restrictions on several digital platforms and applications originating from such jurisdictions, reflecting broader policy concerns relating to national security and economic sovereignty.

The Cabinet’s decision to ease certain restrictions under the Press Note 3 framework signals a calibrated policy shift aimed at facilitating cross-border investment while continuing to safeguard strategic interests. While detailed amendments and implementation guidelines are awaited, the move may improve investor sentiment and provide greater clarity to foreign investors from neighbouring jurisdictions. At the same time, given the sensitivities surrounding investments from land-bordering countries, regulatory scrutiny and approval mechanisms are likely to continue playing an important role in India’s investment regime.