India Explores Three-Tier System to Simplify China-Linked Investments
The Indian government is actively reviewing a new framework for Press Note 3 (PN3), the 2020 rule that requires prior approval for foreign direct investment (FDI) from neighboring countries, including China. Officials are looking to balance national security with the need for capital in fast-growing industries.
Sources suggest the proposed update could introduce a three-tier structure. This would create clearer, faster paths for investments based on their size and strategic importance.
Potential “De Minimis” Threshold
A major part of the discussion involves a “de minimis” carve-out. This would allow automatic approval for small investments—likely those involving a stake below 10%—provided they are in low-risk sectors.
Moin Ladha, a Partner at Khaitan & Co, told NDTV Profit that defining a clear ownership threshold could be “transformative.” Currently, businesses often wait up to 12 months for approvals. Ladha noted that a clear limit would help minority investors move forward across many sectors.
Strategic vs. General Categories
The proposed three-tier system would likely categorize investments as follows:
- Low-Risk/Minority Stake: Investments below a certain threshold (e.g., 10%) could bypass the lengthy case-by-case review.
- Strategic Sectors: Critical industries like solar technology, battery storage, and active pharmaceutical ingredients (APIs) may get fast-track clearances. This is aimed at building domestic capacity in sectors vital to India’s energy and health goals.
- General Category: All other sectors would still face a detailed, case-by-case examination by the government to ensure security.
Remaining Challenges
While the update is promising, some questions remain. Experts like Ladha point out that the government must decide how to calculate ownership totals and how to handle existing Chinese investments from before 2020. There are also concerns about whether a 10% stake might still come with “control rights” that could complicate security reviews.
This review represents the first major rethink of Press Note 3 since it was launched. It signals a shift toward a more calibrated approach—easing rules to support the economy while keeping strong security checks in place.
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