The Indian government has reportedly fast-tracked the approval process for Foreign Direct Investment (FDI) proposals originating from countries that share a land border with India. This move aims to expedite investment clearances under Press Note 3 of 2020, which mandates prior government approval for FDI from these nations, which include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.
According to an official, the government has streamlined procedures and is holding regular inter-ministerial committee meetings to ensure timely processing of applications. These meetings are regularly reviewed at the cabinet secretary level. The goal is to make decisions on these applications within the laid down timelines. Currently, an inter-ministerial committee headed by the Home Secretary considers applications under Press Note 3.
This development follows the Economic Survey 2024-25, which advocated for attracting FDI from China to boost local manufacturing and exports. The survey suggested that with the US and Europe diversifying their sourcing away from China, encouraging Chinese companies to invest in India and export to these markets could be more effective than direct imports from China.
India follows two routes for FDI: the "automatic route," where investors only need to notify the Reserve Bank of India (RBI) and comply with relevant regulations, and the "government route," which requires prior approval from relevant ministries and the Department for Promotion of Industry and Internal Trade (DPIIT). Press Note 3, issued in 2020, introduced stricter screening requirements, mandating government approval for all FDI from countries sharing land borders with India, regardless of the investment size or sector.
While this measure was seen as necessary to safeguard national interests, it has also been criticized for creating red tape and deterring investments. Industry experts have urged the government to ease Press Note 3 restrictions and establish a transparent, time-bound process with a deeming provision to boost investor confidence and increase FDI. Some have also suggested exceptions for private equity investment funds where the fund does not control the Indian company.
Despite these restrictions, India has continued to attract significant FDI inflows. The DPIIT reported that cumulative FDI from April 2000 to September 2024 reached $1,033.40 billion. In the first nine months of 2024, FDI inflows rose by approximately 42% to $42.13 billion. The government has also been actively opening up the economy to global investors by raising foreign investment limits, removing regulatory barriers, developing infrastructure, and improving the business environment.
However, some experts believe that India has not fully capitalized on the "China Plus One strategy," with other countries like Vietnam, Thailand, Cambodia, and Malaysia becoming bigger beneficiaries. The Niti Aayog has suggested that India is an attractive destination for companies seeking to shift their manufacturing bases out of China.
The streamlining of FDI clearances from border nations reflects the government's commitment to balancing national security concerns with the need to attract foreign investment and promote economic growth.
