On 10 March 2026, the Indian government approved a proposal that would bring significant changes to the country’s Foreign Direct Investment (FDI) policy, including the introduction of new guidelines on investments from Land Border Countries (LBC). These guidelines aim to unlock greater FDI inflows from global funds into startups and deep-tech companies by enabling India’s neighbouring countries to invest in its domestic companies across both critical and non-critical sectors. This development marks a significant departure from the restrictive stance that India had adopted during the COVID-19 pandemic to curb opportunistic takeovers and acquisitions of Indian companies.
Under the revised framework, a more differentiated investment regime has been introduced. For instance, a Land Border Country entity holding 10 per cent ownership in a non-critical sector Indian company will now be permitted to further increase its ownership under the automatic route, subject to the applicable sectoral caps. This provision reduces procedural friction for incremental investments and signals a reopening of space for foreign capital from neighbouring countries. However, all relevant information and details of such investments must be reported to the Department of Promotion of Industry and Internal Trade (DPIIT) by the investee entity, thereby ensuring regulatory oversight.
In contrast, to increase its investment in companies in critical sectors like manufacturing of capital goods, electronic capital goods, electronic components, Polysilicon, and ingot-wafer, a Land Border Country entity still has to seek approval from the authorities, but to fast-track this procedure, a 60-day decision/approval timeline has been introduced. The introduction of this timeline makes India a more predictable and efficient destination for capital, particularly for firms seeking to integrate into global supply chains through joint ventures and technology partnerships.
Although these provisions apply to all land border countries, their practical implications are most significant for China. Over the past few years, Chinese investments in India have been constrained by regulatory barriers imposed after the 2020 border standoff. The earlier policy framework effectively slowed down or halted new inflows, especially in sensitive and critical sectors. The current revision, therefore, signals a shift from that restrictive phase towards a more calibrated engagement, in which investment is permitted under defined conditions rather than broadly discouraged.
This shift is closely tied to changes in the dynamics of India–China relations over recent years. The complete disengagement of troops by both countries from contentious areas along the Line of Actual Control in October 2024 represented a turning point after years of military tensions. This disengagement included the return of Indian and Chinese troops from Depsang and Demchok to the positions they held before the 2020 standoff. This was further followed by the restoration of high-level diplomatic mechanisms between the two countries.
One of the first instances was the meeting between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping in Kazan, Russia, on 23 October 2024, during the 16th BRICS summit. The second instance occurred when the two met again in Tianjin, China, on 31 August, 2025, on the sidelines of the Shanghai Cooperation Organisation summit. These engagements were accompanied by several meaningful and tangible outcomes, such as the resumption of the Kailash Mansarovar Yatra after 5 years and the restoration of direct air connectivity between India and China. Another very significant instance highlighting the improving dynamics between China and India is China’s support for India’s BRICS chairmanship.
Apart from the changing geopolitical dynamics, economic factors further reinforce the China-oriented dimension of the policy shift. China is India’s second-largest trading partner, with bilateral trade reaching $127.7 billion in FY 2024-2025, and this figure continues to grow. This trade growth, however, is marked by a significant imbalance, with India’s trade deficit with China widening by about 17% to $99.2 billion from $85.07% in the same FY. This persistent gap reflects India’s dependence on Chinese imports in key sectors such as electronics, which accounted for $36.8 billion in FY 2024-25, as well as Solar ingots, for which India relies almost entirely on China, precisely the sectors that are now being opened, albeit selectively, to foreign investment.
In conclusion, India’s revised FDI guidelines represent a deliberate, targeted policy shift. While officially applicable to all neighbouring countries, their structure, sectoral focus, and timing make it evident that China lies at the centre of this recalibration. By allowing investment inflows from China within a regulated framework, India is seeking to shift part of its economic engagement from trade to investment, while managing geopolitical realities. At the same time, retaining approval requirements in critical sectors, along with stronger reporting and monitoring mechanisms, indicates that strategic caution remains embedded in the framework.
