India Considers Allowing Chinese Investments Up to 24% Without Security Clearance

India is considering a policy shift to allow Chinese firms to invest up to 24% in Indian companies without security clearances, potentially easing investment hurdles. Current rules, introduced in 2020 amid national security concerns, mandate approvals for such investments. The proposal, under review by key ministries, aligns with the Economic Survey 2024's call to relax restrictions on Chinese FDI, aiming to enhance global supply chain participation and exports. This move coincides with renewed efforts to improve India-China economic and diplomatic relations.

India is considering a major overhaul to its rules for foreign investors.  Niti Aayog has said that Chinese corporations should be able to buy up to 24% of Indian enterprises without having to go through extra security checks.  If this plan is accepted, it might make it easier for Chinese businesses to invest. Right now, it takes a long time since they have to acquire government approval first. 

 Under present rules, the Indian government has to give security clearance for any investment from China.  These regulations were put in place in July 2020 because people were worried about national security and wanted to shield Indian businesses against hostile takeovers.  India also said that businesses from countries that share a land border with India may not bid on government contracts unless they first registered with a special committee under the Department for Promotion of Industry and Internal Trade (DPIIT).  These kinds of investments also need the permission of the ministries of external and home affairs. 

 A senior government source informed The Economic Times that significant ministries, including as finance, commerce and industry, and external affairs, are looking into the suggestion.  The suggestion demonstrates that India is willing to change its foreign direct investment (FDI) rules, even though the outcome is yet undetermined. 

 This event is important since it happened at the same time as S. Jaishankar's first trip to China in five years as the External Affairs Minister.  Jaishankar told his Chinese coworker Wang Yi that he was worried about China's strict trade laws and economic problems.  He talked a lot about how China limits the number of rare earth magnets that may be sent to India.  Reports said that the two diplomats also agreed on ways to reduce tensions along the Line of Actual Control (LAC) in eastern Ladakh.  This shows that they want to make their connection better. 

 The Economic Survey 2024 also set the stage for this kind of approach by saying that constraints on Chinese FDI should be slowly lifted.  The poll suggested that this kind of strategy might help India get more integrated in global supply chains and make it easier for the country to export. 

 India has been guarded about Chinese investments, but if the policy change goes through, it would be a huge change.  The government aims to acquire more foreign investment, make its global supply chain operate better, and boost exports by letting people own little pieces of companies without having to fill out a lot of paperwork.  This might have a huge impact on India's economy and its relationships with other countries. 

 The proposal is still up in the air, but it might impact India's investment climate and its relationship with China, so it's something to keep an eye on.