India not looking at a review of Press Note 3 of 2020

Even as the government is looking to further streamline the rules and regulations governing foreign direct investment (FDI) into the country, it is not planning a review of Press Note 3 of 2020 that restricts investments from countries sharing a land border with India, including China.

“There is no change as of now in Press Note 3 of 2020 although there are varying views and concerns on it,” said a source familiar with the development.

While some people are in favour of liberalising the rules under Press Note 3, there also remain security concerns due to which others are in favour of maintaining the status quo, the source pointed out. “This is the balance that has to be maintained and so there is no plan to review the Press Note 3,” they added.

The government had in April 2020 amended the FDI policy through Press Note 3 (2020) mandating that an entity of a country, that shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the government route.

Further, in case the ownership of such an entity is transferred to an entity in India that results in the beneficial ownership falling within this policy, the change in ownership would also require government approval. At the time, the government had said that the objective was to curb an opportunistic takeover of an Indian company during the Covid 19 pandemic.
However, in recent times there have been calls for a rethink of this policy.

The Economic Survey 2023-24 had highlighted how increased FDI inflows from China can help in increasing India’s global supply chain participation along with a push to exports. “…focusing on FDI from China seems more promising for boosting India's exports to the US, similar to how East Asian economies did in the past. Moreover, choosing FDI as a strategy to benefit from the China plus one approach appears more advantageous than relying on trade,” the Survey had noted.