The Finance Ministry of the Government of India has issued a notice of amendments in the FEMA rules, under which now those foreign companies in which China has a stake of up to 10 percent have been allowed to invest through the ‘Automatic Route’. This new rule has come into effect from May 1, 2026. This means that global companies operating in India—including those from China, or any other country that shares a land border with India (e.g. Bangladesh, Pakistan, etc.) have a stake of 10 percent or less—can now make direct investments in India without any prior government approval.
During the COVID-19 pandemic in 2020, a rule was made under which companies or investors from countries sharing a land border with India were required to seek mandatory approval from the government before making any investment in the country. Now, under the new rules, if Chinese investors have 10 percent or less stake in a foreign company, that company will be able to make direct investment in India through the ‘automatic route’ (ie, without government approval).
What was the previous rule?
Earlier, if a company from a country sharing a land border with India wanted to invest even a single rupee in India, it had to first obtain written approval from the government. Even if China’s stake in a large American or European company was just 1 percent, that company still had to wait months for government approval before investing in India; However, this is no longer the case. This exemption applies not only to companies registered in China or Hong Kong, but also to American or European multinational corporations in which Chinese investors have a minority stake. In other words, companies directly registered in China or Hong Kong will still need government approval.
The purpose of this change
The aim behind relaxing FDI rules is to accelerate manufacturing and investment in India’s key sectors—such as electronic components, capital goods and solar cells.