India Revises 2020 FDI Curbs Imposed After Covid and Galwan Tensions

India has decided to ease foreign direct investment (FDI) restrictions for countries sharing land borders with it, including China, marking a shift from the stringent safeguards introduced during the COVID-19 pandemic and heightened geopolitical tensions in 2020. The decision was taken by the Union Cabinet chaired by Prime Minister Narendra Modi , which approved amendments to Press Note 3 of 2020 , a policy that had mandated government approval for investments from neighbouring countries.

The rule was introduced in April 2020 by the Department for Promotion of Industry and Internal Trade (DPIIT) amid the economic disruption caused by the pandemic. With market valuations falling sharply at the time, the government said the measure was necessary to prevent “opportunistic takeovers or acquisitions” of financially vulnerable Indian companies. Under the policy, any investment originating from countries sharing a land border with India including China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan required prior government approval. The regulation also applied if the beneficial owner of the investment was based in any of these countries, even if the funds were routed through another jurisdiction.

The tightening of investment rules coincided with rising tensions between India and China following the Galwan Valley clash in June 2020 , one of the most serious military confrontations between the two countries in decades. In the months that followed, India took several measures affecting Chinese businesses, including banning more than 200 Chinese mobile applications such as TikTok, WeChat and UC Browser , citing national security and data protection concerns.

Despite restrictions on direct investment, economic ties between the two countries have continued through trade. China remains India’s second-largest trading partner , with strong supply-chain linkages across sectors such as electronics, pharmaceuticals and machinery. However, trade has remained heavily skewed in China’s favour.

In the 2024-25 financial year , India’s exports to China declined 14.5 per cent to USD 14.25 billion , while imports rose 11.52 per cent to USD 113.45 billion , pushing the trade deficit to USD 99.2 billion , compared with USD 85 billion the previous year. Between April and January of 2025-26 , India’s exports to China rose 38.37 per cent to USD 15.88 billion , while imports stood at USD 108.18 billion , leaving a deficit of USD 92.3 billion .

Official data also shows that China’s share in India’s FDI inflows remains limited , accounting for about USD 2.51 billion , or 0.32 per cent , of total FDI equity inflows between April 2000 and December 2025 .

The decision to relax the restrictions has drawn criticism from the opposition. Congress leader Jairam Ramesh said the move reflects what he described as the government’s “calibrated capitulation” to China. In a post on social media, he said the easing of investment norms was not surprising and linked it to what he alleged was a broader process of normalising Sino-Indian relations on Chinese terms .

Ramesh also referred to Prime Minister Narendra Modi’s statement on June 19, 2020 , following the Galwan clash in which 20 Indian soldiers were killed , and claimed the government had effectively given China a “clean chit.” He further alleged that India had accepted the loss of patrolling rights in areas such as Depsang, Demchok and Chumar in eastern Ladakh.

The government has not responded directly to the criticism, but officials maintain that the changes to the investment policy are part of a broader effort to balance national security concerns with the need to attract foreign investment and support economic growth. The revision of Press Note 3 is therefore seen as a recalibration of the pandemic-era policy framework as India seeks to maintain safeguards while encouraging capital inflows in key sectors.