India eases FDI rules for neighbouring countries amid efforts to attract investment

The Centre has eased foreign direct investment rules for countries that share land borders with India, a policy first introduced during the Covid-19 pandemic to protect domestic companies from opportunistic takeovers.

Sources said the move is aimed at encouraging investment, particularly from China, with which India currently runs a trade deficit of $99.2 billion.

The government had revised the rules in 2020, requiring investors from neighbouring countries, including China, Bangladesh, Pakistan, Nepal, Bhutan, Myanmar, and Afghanistan, to seek prior approval from the central government before investing in India. Earlier, such investments were allowed through the automatic route, which did not require government approval.

With the latest changes, the Cabinet has relaxed these restrictions in a bid to improve the investment climate and boost inflows, sources said.

China’s share in India’s foreign direct investment remains relatively small. Between April 2000 and December 2025, Chinese investments accounted for just 0.32 percent of total FDI equity inflows into India, amounting to $2.51 billion.

In a statement, the government said the new guidelines are intended to provide clarity and improve the ease of doing business in the country while facilitating investments that contribute to greater FDI inflows.

The government added that increased investment could help India gain access to new technologies, expand domestic firms, increase domestic value addition, and integrate more effectively with global supply chains.

According to the statement, higher FDI inflows would supplement domestic capital, support the objectives of Atmanirbhar Bharat, and accelerate overall economic growth.

Relations between India and China, strained after the 2020 Galwan Valley clash, have gradually improved in recent years. The two countries began rebuilding ties in 2025 through a series of high-level bilateral engagements.

Chinese President Xi Jinping met Prime Minister Narendra Modi in October 2024 in Kazan, Russia, during the BRICS Summit, and diplomatic exchanges have continued since. Direct flights between the two countries resumed in 2025.

China is currently India’s second-largest trading partner, with imports from China rising to $113.45 billion in the 2024-25 financial year.