India on Tuesday approved easing restrictions on Chinese investments in select sectors, the government said, to help ease a capital squeeze and marking a reset of economic ties after six years of friction.
Prime Minister Narendra Modi's cabinet approved changes to foreign direct investment rules that restricted investments from China and other land‑bordering countries, to allow investments in electronics, capital goods and solar cell sectors, according to a statement.
Chinese investments in these sectors will be processed within 60 days provided the majority shareholding rests with an Indian resident at all times, the statement said.
In 2020, New Delhi had tightened scrutiny of investments from Chinese companies, as relations between the two nuclear nations soured after clashes between their soldiers on their largely undemarcated Himalayan frontier killed 20 Indian and four Chinese soldiers.
Since then, investments by Chinese entities in Indian companies have required security clearance from a panel comprising India's home and foreign ministries.
Due to these restrictions, deals such as a 2023 plan by China's BYD to invest $1 billion in an electric car joint venture, were shelved.
On Tuesday, India also allowed investors with up to 10% Chinese ownership to invest under the automatic route as per the applicable sectoral caps.
The new guidelines will facilitate greater FDI inflows, access to new technologies, and integration with the global supply chain, the statement said.
India's trade deficit with China rose to $99 billion in FY25 driven heavily by imports of electronics, components and machinery.
The easing was driven by industry demands, as the 2020 curbs constrained manufacturers that depend on Chinese technology and capital.
The change could boost cross-border mergers and acquisitions, minority investments and delayed funding rounds, particularly in capital-intensive sectors such as manufacturing, and startups, said Vaibhav Kakkar, senior partner at law firm Saraf and Partners.
Global realignment sparked by U.S. tariffs has already prompted India to consider a calibrated reset with China to keep supply chains steady and attract investments.
Modi visited China for the first time in seven years in August and discussed ways to improve ties when he met Chinese President Xi Jinping.
India and China have since resumed direct flights, and New Delhi eased visa procedures for Chinese business professionals.
India has also eased curbs on the procurement of Chinese equipment by state-run power and coal companies, Reuters reported last month.
