Chinese Investment in India: 2026 as an Inflection Point
During 2026, India introduced significant, targeted relaxations to the restrictions on Chinese foreign direct investment imposed in 2020. Although prior government approval continues to be required for direct investments by Chinese companies, the changes create new opportunities for certain categories of investors and investments.
In March 2026, India for the first time authorised approval under the automatic route for foreign direct investment (FDI) from companies incorporated outside China and other countries sharing a land border with India (LBCs) where the Chinese or other LBC beneficial ownership in the investor entity does not exceed 10% and is non-controlling.[1] Foreign investors with a minority Chinese stake no longer have to obtain prior approval from the Department for Promotion of Industry and Internal Trade (DPIIT) in the Ministry of Commerce & Industry for their investments. This policy change is relevant mainly to international funds and offshore investment structures by reducing uncertainty where they have minority Chinese ownership. Notably, a company incorporated in China does not qualify for this exemption merely because its proposed investment in India is 10% or less.
Further policy shifts emerged later in the year driven by the economic realities of heavy Indian import dependence on Chinese electronics, capital goods, and solar manufacturing inputs. In May 2026, India introduced a new expedited 60-day approval procedure for proposals by Chinese citizens/companies which, individually or collectively invest up to 49% of the capital or voting rights of an Indian company engaged in certain qualifying sectors/activities provided that the majority shareholding and control of the Indian company is with resident Indian citizen and/or Indian entities owned and controlled by resident Indian citizens.[2]
The qualifying sectors which are eligible for this expedited 60-day approval scheme are the high tech sectors in which the Indian government is attempting to promote manufacturing and are import dependent. These sectors include:
· capital goods manufacturing,
· electronic capital goods and electronic component manufacturing
· Polysilicon (and Ingot) Wafers
· Advanced Battery Components
· Rare Earth Permanent Magnets
· Rare Earth Processing
The government has enumerated activities within each of the above six sectors. The list of qualifying sectors is not necessarily exhaustive. The government has expressly empowered a Committee of Secretaries headed by the Cabinet Secretary to revise the list, and the Secretary of DPIIT has publicly indicated that additional sectors may be included. This leaves open the possibility of extending the expedited approval procedure to other manufacturing activities of interest to Chinese investors.
India’s May 2026 reforms represent a limited but commercially significant relaxation of the restrictions imposed on Chinese investment in 2020. While direct investments by Chinese companies continue to require government approval, India has clearly signalled its interest in Chinese investment in specified manufacturing sectors, provided Indian majority ownership and control are maintained. Significantly, the expedited approval procedure does not itself prescribe mandatory technology transfer or indigenisation requirements. This potentially allows Chinese investors and their Indian joint venture partners considerable flexibility in structuring technology licensing, ownership of intellectual property, access to manufacturing know-how and rights to future improvements, subject to applicable law.
These reforms come at a time when Chinese manufacturers are expanding their international production footprint, particularly in electric vehicles, advanced batteries and related components. For Chinese manufacturers considering India as a production base, the changes create new opportunities to structure investments in selected manufacturing sectors while, for India, 2026 with hindsight, may be the inflection point where India’s ambitions as an advanced manufacturing hub move significantly forward.
Aparna Viswanathan
Managing Partner
Viswanathan & Co., Advocates
[1] Ministry of Commerce & Industry, Department for Promotion of Industry & Internal Trade, Press Note 2 (2026 Series).
[2] Ministry of Commerce & Industry, Department for Promotion of Industry & Internal Trade, SOP for Processing FDI Proposals dt. 4.5.2026, pr. II. 7 at pg. 32.
