India May Lift Investment Curbs On China If Border Stays Calm

India could ease its heightened scrutiny of Chinese investments if the two countries' border remains peaceful, said the secretary of the Department for Promotion of Industry and Internal Trade (DPIIT). It is the first signal that the four-year-old curbs could be lifted.

Border tensions, the biggest deterrent to ties between the nuclear-armed Asian giants, have eased, which could lead to improved investment ties, top industrial policy bureaucrat Rajesh Kumar Singh said on Wednesday at the annual World Economic Forum (WEF) meeting in Davos, Switzerland.

In 2020, India tightened its scrutiny over investments from the companies based in countries with which it borders, adding a layer of vetting and security clearances.

The action was widely looked as retaliation in the aftermath of a clash between Chinese and Indian troops on their disputed, 3,800 km (2,400 mile) Himalayan frontier that had killed at least 20 Indians and four Chinese soldiers, which has been termed as the worst military conflict between India and China in decades.

Billions of dollars of investments between China and India have been disrupted due to curbs on investments, including planned projects from Chinese automakers BYD and Great Wall Motor. However, the investment rules may change in the future. In an interview, the Secretary of the Department for Promotion of Industry and Internal Trade, Singh, stated that the rules could change once the relationship between India and China stabilises, indicating the border issues have now stabilised. He also mentioned that normal business could resume on the investment side if things go well. However, he did not provide any specific timeline for a possible easing of investment restrictions.

When asked about China's investments, Singh stated that a peaceful border is necessary for Chinese investments in India. He further added that it is not right to allow investments from a country that is also nibbling at India's border.

Singh stated that this move to restrict investments is a slight step back from India's broader opening to foreign investment in recent years. India has significantly lowered or scrapped foreign ownership caps in many sectors and granted automatic approvals for inbound investment. Despite the ongoing border tensions, China remains India's largest source of imports. The bilateral trade between the two countries has risen by 32 per cent to nearly USD 114 billion in the fiscal year that ended in March.

In 2022, Indian and Chinese troops were involved in two clashes, despite the ongoing peace talks. Although New Delhi and Beijing have had diplomatic and military discussions to resolve the conflict, they must find a way to avoid potential confrontation in the western Himalayas, according to Indian Foreign Minister Subrahmanyam Jaishankar's statement in June. However, Singh expressed hope from the business community that things will stabilise and improve, as there have been no incidents in the last year or so.

A mechanism to review foreign investments from all countries, resembling those in the Australia and United States, is an option India could eventually consider, Singh said, adding no decision has been taken as India would want to maintain a ‘welcoming environment’ for investments.