India relaxes FDI norms for China, Bangladesh, other countries sharing land border

India today came out with a fresh set of guidelines easing norms for foreign direct investment (FDI) coming from countries sharing land border with it, providing for a 60-day timeline for approval to investments in critical sectors, including electronic capital goods and electronic components.   

A meeting of the Indian cabinet presided by Prime Minister Narendra Modi approved the changes in FDI policy for investments from Land Bordering Countries (LBCs), which will help manufacturing in electronic components, capital goods and solar cells, an official statement said this evening (10 March).

Countries that share land borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Afghanistan and Myanmar.

The amendments in the FDI policy aim to unlock greater FDI inflows from global funds for startups and deep techs, take forward the agenda of ease of doing business, it said.

The changes in the policy envisage "expeditious approval in 60 days to help companies enter into collaborations to expand manufacturing in India" with access to technology and integration with global supply chains.

In 2020, India had clamped restrictions on foreign companies having shareholders from the LBCs, which required mandatory government approval for investments in India in any sector, in a bid to curb opportunistic takeovers or acquisitions of Indian companies due to the Covid-19 pandemic.

At that time, the Indian government clearance was mandatory for an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country. Additionally, any transfer of ownership of any existing or future FDI in an entity in India resulting in the beneficial ownership falling within the aforesaid jurisdiction(s) also requires government approval.

The statement noted that the restrictions on cases where LBC investors may have only non-strategic, non-controlling interests were seen as adversely affecting investment flows from investors, including global funds such as PE/VC funds.

It said, "The new guidelines will provide clarity and ease of doing business in India, and facilitate investments which can contribute towards greater FDI inflows, access to new technologies, domestic value addition, expansion of domestic firms and integration with global supply chain."

"This would help in leveraging and enhancing India's competitiveness as a preferred investment and manufacturing destination," according to the statement.

The statement said the existing policy has been reviewed and amended to provide for a definition and criteria for the determination of beneficial ownership (BO) that is widely used by the investing community under the Prevention of Money Laundering Rules, 2005.

The beneficial ownership test will be applied at the level of the investor entity. Investors with non-controlling LBC beneficial ownership of up to 10% would be permitted under the automatic route, subject to applicable sectoral caps, entry routes and attendant conditions.

Under the amended FDI rules, such investments would be subject to the reporting of relevant information/details by the investee entity to the Commerce Ministry. Expedited clearance of investments in specific sectors –

Proposals for LBC investments in specified sectors of manufacturing in capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer would be processed and decided within 60 days.

The Companies under the Cabinet Secretary may also revise the list of specified sectors.

In these cases, the majority shareholding and control of the Investee entity will have to be with resident Indian citizens and/or resident Indian entities owned and controlled by resident Indian citizens at all times.

China stands at the 23rd position with only a 0.32% share ($2.51 billion) in the total FDI equity inflow reported in India from April 2000 to December 2025.

Relations between New Delhi and Beijing nosedived following the fierce clash between their armies in Galwan Valley across the unresolved Himalayan borders in eastern Ladakh in June 2020 that marked the most serious military conflict between the two sides in decades.

Following the military faceoff, India banned over 200 Chinese mobile apps like TikTok, WeChat, and Alibaba's UC browser.

Bilateral trade between India and China has grown multi-fold with the balance trade heavily tilted in favour of China. In fact, China has emerged the second-largest trading partner of India.

In 2024-25, India's exports to China shrunk 14.5% to $14.25 billion as against $16.66 billion in 2023-24. Imports, however, rose 11.52 per cent in 2024-25 to $113.45 billion against $101.73 billion in 2023-24. The trade deficit was widened to $99.2 billion in 2024-25 from $85 billion in 2023-24.

During April-January 2025-26, India's exports to China rose 38.37% to $15.88 billion, while imports rose 13.82% to $108.18 billion. Trade deficit stood at $02.3 billion.

According to Exim Bank of India data, cumulative inflows of FDI into India from Bangladesh during April 2000- March 2020 amounted to $0.1 million.

Cumulative Foreign Direct Investment from India to Bangladesh has more than doubled from $243.91 million in 2014 to $570.11 million in December 2018. Indian companies have invested in various sectors, including telecommunications, pharmaceuticals, FMCG and automobile sectors in Bangladesh.

During Bangladesh Prime Minister Sheikh Hasina's visit in April 2017, 13 agreements worth around $10 billion of Indian investment mainly in power and energy sectors in Bangladesh, were signed.