Explained | Govt has eased FDI norms for foreign cos having small Chinese/Hong Kong stake

New Delhi: India cautiously eased FDI norms from May 1, 2026, for foreign companies with Chinese/Hong Kong shareholding of up to 10 per cent to invest in India under the automatic route.

Several foreign and domestic firms, industry associations, experts, and startups were demanding this easing.

Here are few questions and answers to understand the issue and importance of FDI: FOREIGN DIRECT INVESTMENT (FDI): It means direct or indirect investments by a foreign entity in an Indian business with a long term interest. It involves ownership, some control and management influence. For example, a foreign entity setting up a factory or buying shares/stake in an Indian company.

Governed by the Foreign Exchange Management Act (FEMA). The Department for Promotion of Industry and Internal Trade (DPIIT) is the nodal body for policy issues, and the RBI regulates and implements the rules under FEMA.

On the other hand, foreign portfolio or institutional investment (FPI/FII) is governed by Securities and Exchange Board of India (SEBI) regulations. It involves foreigners investing in Indian shares, bonds and mutual funds without management control. The investment is for a short to medium term because it moves in and out quickly.

IMPORTANCE: India requires huge investments in sectors like infrastructure, manufacturing and services to boost economic growth and create jobs. Healthy inflows also help in maintaining the balance of payments and the value of the rupee. It brings not just capital, but also technology, skills, and global best practices that improve productivity and competitiveness.

TOP INVESTORS: Mauritius and Singapore (together accounting for 49 pc of total FDI India has received during April 2000 and December 2025). It is followed by the US (10 pc), Netherlands (7 pc), Japan (6 pc), UK (5 pc), UAE (3 pc), and Cayman Islands, Cyprus and Germany (2 pc each).

KEY SECTORS: India mainly attracts FDI in the services sector (financial, banking, insurance, non-financial / business, outsourcing, R&D, courier, tech, testing and analysis; computer software and hardware; trading; telecom; auto; construction (infra activities); pharma, non-conventional energy; and chemicals.

DATA SO FAR: In fresh equity: USD 776.75 billion during April 2000 and December 2025 Total FDI (which includes equity inflows, re-invested earnings, and other capital) : USD 1.14 trillion INVESTMENT ROUTES: FDI is allowed through the automatic route (no prior government approval, only compliance of sectoral norms, and post-investment reporting to the RBI) in most of the sectors, while in certain other areas such as telecom, media, pharmaceuticals and insurance, government approval is required.

PROHIBITED SECTORS: Sectors like lottery business, gambling and betting, chit funds, nidhi company, and manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.

PRESS NOTE 3 OF 2020: DPIIT issues changes in FDI norms through press notes.

In order to curb opportunistic takeovers/acquisitions of Indian companies due to the COVID-19 pandemic, the government had amended the FDI Policy through Press Note 3 (2020) on April 17, 2020. There were concerns that Chinese entities could exploit pandemic-induced market distress to acquire Indian firms at low valuations.

As per the PN3, any entity from a country that shares a land border with India-China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan, or where the beneficial owner is from any of these countries, can invest in India only through the government route, in any sector.

Further, any transfer of ownership of existing or future FDI in an Indian entity that results in the beneficial ownership shifting to any of these countries will also require prior government approval.

An inter-ministerial committee was formed to scrutinise applications under PN3.

The provision assumed importance as India-China relations deteriorated following the Galwan Valley clashes in 2020. India had also banned a number of Chinese mobile applications, including TikTok and WeChat.

CONCERNS: Certain quarters raised concerns that even foreign companies with a minority shareholder from these countries were required to seek approval before investing in India, leading to delays.

According to the government, applicability of PN3 restrictions to cases where investors from these countries may have only non-strategic, non-controlling interests was seen as adversely affecting investment flows from investors including global funds such as PE/ VC funds.

CABINET'S DECISION ON March 10, 2026: Foreign companies (present other than these 7 nations) having a Chinese/Hong Kong shareholding of up to 10 per cent (or non-controlling stake) will be eligible to invest in India in sectors where FDI is permitted under the automatic route, subject to applicable sectoral conditions. However, this relaxation is not there for companies or investors from these 7 countries.

Definition and criteria for determination of 'Beneficial Owner' were included from the Prevention of Money Laundering Rules, 2005. Such investments are subjected to the reporting of relevant information/details by the investee entity to DPIIT.

Further the cabinet decided to provide expedited clearance (within 60 days) for investors of these countries in specific sectors/activities of manufacturing in capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer.

However, in these cases, the majority shareholding and control of the Investee entity will always be with resident Indian citizen(s) and/or resident Indian entity(ies) owned and controlled by resident Indian citizen(s), at all times.

March 16, 2026: The DPIIT notified changes. The notification said, "The expression 'beneficial owner' of an investment in India will mean the beneficial owner of the investor entity incorporated or registered in a country other than a country which shares a land border with India".

As per a PMLA rule, controlling ownership interest means ownership of or entitlement to more than ten per cent of shares or capital or profits of the company.

MAY 1, 2026: The changes in PN 3 came into effect as the finance ministry notified the decision by amending Foreign Exchange Management (Non debt Instruments) Rules 2019.

FDI FROM CHINA: China stands at the 23rd position with only 0.32 per cent share (USD 2.51 billion) in the total FDI equity inflow reported in India from April 2000 to December 2025.