India Considers Easing Chinese Investment Restrictions

India's leading think tank, NITI Aayog, has suggested easing stringent investment rules that subject Chinese companies to enhanced scrutiny. These rules have delayed significant deals, say three government sources.

Under current regulations, any Chinese entity's investment in India requires security nods from the country's home and foreign ministries. The think tank's proposal permits Chinese firms to invest up to 24% in Indian companies without needing approvals, the sources revealed on condition of anonymity.

The proposal is under review by the trade ministry's industries department and other key government offices, including Prime Minister Narendra Modi's. While not all recommendations from NITI Aayog are adopted, this suggestion comes at a crucial time, as India and China attempt to thaw relations after border conflicts in 2020.

The fate of this proposal remains uncertain, as political leaders will decide in the coming months. Two sources noted the industries department's backing, but other government bodies haven't issued statements. Neither NITI Aayog nor relevant ministries responded to Reuters' request for comments.

The restrictions were implemented post-2020 border skirmishes, particularly affecting Chinese firms. Unlike firms from other nations, which can freely participate in most Indian sectors, Chinese investments face barriers.

Notably, a $1 billion electric car venture by China's BYD was paused under these rules. While global foreign investments have slowed amid geopolitical tensions, such guidelines significantly impacted India's FDI, plummeting to $353 million last fiscal, down from $43.9 billion in 2021. With military tensions easing since October, both nations aim to restore direct flights and seek a lasting resolution to their longstanding border conflict.

Amid these diplomatic efforts, Indian Foreign Minister Subrahmanyam Jaishankar visited China for the first time in five years. He emphasized the need to resolve border tensions and oppose trade restrictions like China's curbs on rare earth magnets. The think tank has also recommended restructuring the board managing foreign investment proposals, according to sources.

(With inputs from agencies.)