Foreign Direct Investment (FDI) rules have been made easier for countries sharing borders with India, including China. Changes in investment guidelines have been approved in the cabinet meeting held on Tuesday (March 10) under the leadership of Prime Minister Narendra Modi. The Cabinet has amended the strict rules of ‘Press Note 3 (2020)’. However, other conditions of FDI rules including sector-specific limits and entry route will remain applicable to these investments.

The Cabinet approved the Foreign Direct Investment (FDI) policy for a fixed time frame for investment in key sectors under PN3. The change in direct FDI is aimed at promoting more foreign direct investment from global funds for startups and deep tech companies and taking forward the agenda of ease of doing business.

The government had issued Press Note 3 (2020)

Investment rules were tightened after the violence in Galwan Valley. During the Corona period, the government had made changes in the existing foreign direct investment policy through Press Note 3 (2020) (PN3) issued on 17 April 2020. According to PN3, an entity of a country sharing a border with India, or where the beneficial owner of an investment in India is situated in or is a citizen of such country, was required to obtain government approval. Its purpose was to stop ‘opportunistic acquisitions’ of Indian companies. Especially from China. Let us tell you, after the violence in Galwan Valley, the government had banned more than 200 Chinese apps in India. Besides, the scrutiny of Chinese investment proposals was also tightened.

Why did the government take the decision

According to sources, the reason behind this big step taken by the government is considered to be trade balance and promotion of domestic manufacturing. China, which shares border with India, is India’s second largest trading partner. According to the Money Control report, India’s trade deficit with China would increase to $99.2 billion by the year 2025. By relaxing investment rules, companies from countries bordering India will be able to set up plants in India, which can help in reducing imports.

What will be the benefit?

Easing the investment rules of the government will make it easier to do business in India and will encourage investment. Due to which FDI is expected to increase. Apart from this, there will be benefit in access to new technology, expansion of domestic companies and integration of global supply chain. Increased FDI inflow will boost domestic capital, benefit the objectives of self-reliant India and accelerate economic growth.

China Trade Surplus: Amidst the imposition of high tariffs by America, China has crossed its trade surplus of 1 trillion dollars for the first time in November. The main reason for this is that American manufacturers started exporting their products to the markets of Europe, Australia and South-East Asian countries instead of sending their products to America due to high import duties. At the same time, China’s exports to America have reduced to about one-third compared to a year ago.

China’s trade increased

According to Customs Department data released on Monday, China’s total exports in November increased by 5.9 percent on an annual basis. In the same month, China’s trade surplus increased to $111.68 billion, which is the highest since June and has also crossed October’s record of $90.7 billion. Due to this, China’s trade surplus went above 1 trillion dollars for the first time in the last 11 months.

According to Jichun Huang, China Economist of Capital Economics, despite the agreement between the US and China on tariffs, there was no significant improvement in China’s shipments to the US. Experts believe that China’s exports will remain similarly strong in the coming year also. After Trump’s election in 2024, China adopted a strategy to expand its exports to diverse markets, including increasing trade with Southeast Asia and the European Union.

How is China’s trade surplus?

This directly benefited Chinese companies, who strengthened their hold in global markets with low tariffs. At the same time, China’s exports to America decreased by 29 percent in November, while exports to European Union increased by 14.8 percent, to Australia by 35.8 percent and to South Asian countries by 8.2 percent.

This report has come at a time when after the meeting of President Trump and President Xi Jinping in South Korea on October 30, there were positive signals regarding the tariff agreement between the two countries.

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