Policy Recalibration May Lift Chinese Investment Back to Pre-2020 Levels

• Amendments to Press Note 3 may restore China’s FDI share in India to around 2%, reversing the drop to 0.27%.

• Policy easing could unlock stalled proposals and revive short-term inflows.

• A 60-day approval window targets key tech and manufacturing sectors.

• USD 8.41 billion proposals received; USD 1.51 billion approved.

• Reforms aim to boost domestic capacity and global value chain integration.

The government’s recent adjustments to Press Note 3 could help China regain a stronger foothold in India’s foreign direct investment (FDI) landscape, potentially restoring its share to around 2 per cent, according to a report issued Monday by Crisil Intelligence.

The study indicates that the revised guidelines may enable Chinese capital — including investments routed through Hong Kong — to exceed the 2 per cent mark in India’s total FDI inflows. That would represent a return to levels seen before the stricter Press Note 3 framework came into force. Between 2014 and 2019, Chinese-origin investments made up roughly 2 per cent of India’s cumulative FDI. However, following the implementation of enhanced screening requirements, the share declined sharply to just 0.27 per cent.

Press Note 3 was introduced in April 2020, at a time when the Covid-19 pandemic had triggered economic disruption and depressed valuations. The policy was designed to prevent opportunistic takeovers of Indian firms by investors from neighboring countries during the downturn, mandating prior government approval for such investments.

With the easing of certain provisions, Crisil Intelligence expects previously stalled proposals to move forward, potentially leading to a short-term rebound in inflows from China and Hong Kong. Over a longer horizon, the changes could have a more profound effect, encouraging deeper technology partnerships, joint ventures, and merger and acquisition activity. Such developments may help India enhance domestic manufacturing capabilities, reduce reliance on imports, and strengthen its position within global value chains.

A key element of the revised framework is the introduction of a defined 60-day clearance window for investments in specific industries. These sectors include capital goods, electronic capital equipment, electronic components, polysilicon, and ingot-wafer manufacturing. The time-bound approval process is expected to make cross-border collaboration more efficient and predictable, particularly in technology-intensive and emerging areas.

Government data referenced in the report shows that investment proposals worth approximately USD 8.41 billion were submitted under the Press Note 3 regime. Of that amount, approvals were granted for around USD 1.51 billion. The proposals that did not secure clearance accounted for nearly 5 per cent of India’s average annual FDI inflows over the past five years.

While an uptick in approved investments could generate immediate gains, the broader economic impact is likely to unfold over the medium to long term. Increased collaboration in advanced manufacturing and high-technology sectors may enable India to move higher up the value chain and play a more significant role in global production networks.

Overall, the recalibrated approach to Press Note 3 signals an attempt to balance economic security concerns with the need to attract foreign capital and expertise. If projections materialize, Chinese investment could once again represent a modest yet meaningful share of India’s overall FDI inflows, contributing to industrial growth and deeper global integration.