India Leaves the Door Ajar for China’s Investors

India has opened its doors to Chinese investors, allowing them to hold up to 10% stakes in non-controlling positions across various industries. The country received 29 foreign direct investment proposals worth $500 million, including sectors like IT, AI, manufacturing, pharmaceuticals and transport services. This decision comes after India's commerce and industry ministry implemented an automatic-approval route for investors from land-bordering countries, initially aimed at China following the 2020 border clashes.

Previously, any investment linked to a beneficial owner in a bordering nation, particularly China, required full government authorization, irrespective of stake size. Meanwhile, India's forex reserves have surged by $7.2 billion to $581.9 billion, driven by a government-backed foreign-currency deposit and swap scheme that has attracted over $50 billion.

This forex reserve build-up provides the Reserve Bank of India (RBI) with greater flexibility to protect the rupee against external shocks. The decision to relax foreign investment rules is aimed at deepening India's access to foreign capital while maintaining strategic caution. After five years of stringent screening that kept Chinese investment minimal (only $2.5 billion between 2000 and 2025), India is now seeking to attract the capital and technology supply chains from China without opening the floodgates to control-seeking acquisitions.

The fast-track approval process for manufacturing sector investments is expected to speed up the application process. Traders are watching forex reserves, anticipating them to climb towards the $700 billion mark as inflows from Non-Resident Indians continue to bolster the country's financial position.