Explainer: Why India may revisit Press Note 3 curbs on Chinese investments

Commerce and Industry Minister Piyush Goyal has hinted that the government may consider changes to Press Note 3, a key element of India’s foreign direct investment (FDI) policy. Speaking at a media event, Goyal said Prime Minister Narendra Modi is “looking at everything that will lead to ease of doing business and ease of living,” while adding that he would allow “time to take the decision (on Press Note 3 changes).”

While no official decision has been taken yet, Goyal’s remarks signal that the government is reviewing the framework.

What is Press Note 3?

Press Note 3 was introduced in April 2020 by the Government of India, Department for Promotion of Industry and Internal Trade (DPIIT), revising the FDI policy in light of Covid-19 to protect Indian companies from opportunistic foreign takeovers.

It mandated that any investment from countries sharing a land border with India — or where the beneficial owner of the investment is based in such countries — could only come through the government approval route. The move was widely seen as aimed at preventing opportunistic takeovers of Indian companies by Chinese investors when valuations were depressed.

Why was it brought in?

The restrictions came into force on April 22, 2020, and significantly increased scrutiny of FDI from China. Before that, most FDI proposals could be routed through the automatic approval channel, but the new rule ensured that any such investment required explicit government clearance.

Earlier, any non-resident entity could invest in India, except in prohibited sectors. However, restrictions were imposed on citizens and companies from Bangladesh and Pakistan, requiring government approval for any such investments.

Why is India reconsidering now?

Nearly four years later, policymakers are weighing whether the curbs need a reset. Officials argue that while the policy succeeded in preventing hostile acquisitions, it has also slowed the inflow of Chinese capital into key sectors such as technology, manufacturing, and start-ups.

The debate also comes at a time when India–China relations show early signs of normalisation. After Prime Minister Narendra Modi’s recent visit to China for the Shanghai Cooperation Organisation (SCO) summit, both sides pledged to move forward. In his meeting with Chinese President Xi Jinping on the sidelines of the summit, the two leaders agreed to work towards a “fair, reasonable and mutually acceptable” solution to the border issue, while also committing to expand trade and investment ties.

If Press Note 3 is revisited, it could become one of the most visible signals of thawing relations between the two Asian giants, whose ties had sharply deteriorated five years ago following clashes between troops along the Line of Actual Control (LAC) in Ladakh valley.