Any investor from neighbouring countries who previously held even a small stake in a foreign company requires government approval to invest in India. Now, this rule applies only to "beneficial ownership."

India takes steps to improve relations with China amid Iran tensions

India Eases FDI Rules: There is currently significant tension in the Middle East. Iran is being continuously attacked by the United States and Israel, while the Iranian military is responding with drone strikes. Amid this ongoing unrest in West Asia, India has become diplomatically active and is attempting to balance its relations with various countries. In this direction, the Indian government has taken an important step regarding Chinese companies.

Big decision for Chinese companies

The Department for Promotion of Industry and Internal Trade (DPIIT) on Monday issued a notification regarding changes to the Foreign Direct Investment (FDI) policy. Under the new rules, foreign companies with up to 10 percent Chinese stake are permitted to invest in India through the automatic route. However, this exemption will not apply to companies registered in China or Hong Kong, or to companies from other countries sharing a land border with India. Such investments will remain subject to the FDI limits and conditions for the relevant sectors.

Have the rules changed?

Previously, any investor from neigh boring countries holding even a small stake in a foreign company was required to obtain government approval to invest in India. Now, this rule will only apply to "beneficial ownership." This means that the approval requirement will be determined based on the identity of the actual owner.

According to the notification, the definition of 'beneficial ownership' will be in accordance with the provisions of the Prevention of Money Laundering Act, 2002 (PMLA).

What is the new provision?

According to the PMLA, any person or entity holding 10 percent or more of a stake in a company is considered a "beneficial owner." This change to FDI rules was recently approved by the Union Cabinet.

During the COVID-19 pandemic, the Government of India issued Press Note 3 (2020) on April 17, 2020, making government approval mandatory for investors from countries sharing a land border with India. These countries include China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan.

The rule also impacted global private equity (PE) and venture capital (VC) funds, especially those companies in which Chinese or Hong Kong investors had small stakes.

According to the new notification, if citizens or entities of these countries have direct or indirect stakes in an investor entity and do not require government approval, such investments will have to be reported under the DPIIT's established procedures. According to government data, China's share in total FDI equity inflows into India from April 2000 to December 2025 was only 0.32 percent.