India has moved to recalibrate one of its most restrictive foreign investment rules introduced during a period of geopolitical tensions, signalling a more pragmatic approach to strengthening domestic manufacturing supply chains. The Union Cabinet has approved amendments to Press Note 3 of 2020, easing certain restrictions on investments from countries sharing land borders with India.

The decision was cleared at a Cabinet meeting chaired by Prime Minister Narendra Modi and comes as the government attempts to accelerate the development of a domestic electronics components ecosystem. The changes are expected to facilitate more joint ventures between Indian manufacturers and global suppliers, especially Chinese companies that dominate several segments of the global electronics supply chain.

Press Note 3, introduced in April 2020 and later reinforced after the Galwan Valley clash, required prior government approval for any investment originating from countries sharing land borders with India. These include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan. The policy was intended to prevent opportunistic acquisitions of Indian companies during the pandemic-driven market downturn.

Under the revised framework, the government has introduced a formal definition of beneficial ownership, aligning it with provisions under the Prevention of Money Laundering Rules, 2005. The test for beneficial ownership will now be applied at the level of the investor entity.

The key operational change lies in the treatment of minority investments. Investments from these neighbouring countries where beneficial ownership is up to 10 percent and non-controlling will now be permitted through the automatic route, subject to sectoral caps and reporting requirements to the Department for Promotion of Industry and Internal Trade (DPIIT). This removes a major bottleneck that previously required government approval even for small equity participation.

At the same time, the government has retained structural safeguards. Majority ownership and control of the investee company must remain with resident Indian citizens or Indian-owned entities at all times.

Another important feature of the revised policy is a commitment to fast-track approvals within 60 days for investments in select manufacturing sectors. These include capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer manufacturing.

The policy change is closely linked to the government’s push to deepen domestic value addition in electronics. India’s electronics industry has been urging policymakers to simplify the investment approval process so that component manufacturing can scale alongside the country’s rapidly expanding assembly operations.

Several projects are currently being structured around the government’s Electronics Component Manufacturing Scheme (ECMS), which offers incentives worth ₹22,919 crore to encourage local production of high-value components.

Industry executives say partnerships with Chinese suppliers are often necessary to gain access to technology, manufacturing scale and cost efficiencies. China currently accounts for more than 60 percent of global electronics manufacturing capacity, making it difficult for new ecosystems to develop without some degree of collaboration.

The policy relaxation could unlock investments in segments such as printed circuit boards (PCBs), display modules, camera sub-assemblies and battery components areas where India remains heavily dependent on imports.

The shift is already beginning to translate into corporate activity. Recently, Dixon Technologies received approval from the Ministry of Electronics and IT to form a 74:26 joint venture with HKC Overseas, a Chinese display manufacturer. The partnership will produce liquid crystal modules and thin-film transistor LCD modules used in smartphones, televisions, monitors and automotive displays.

The company is also awaiting approvals for additional joint ventures with Chongqing Yuhai Precision Manufacturing for laptop enclosures and with smartphone maker Vivo for handset manufacturing.

Industry executives say the earlier lack of clarity around Chinese investment rules had slowed down several proposals under ECMS. With clearer thresholds and faster approvals, companies are expected to revive stalled investment plans.

Analysts view the policy shift as part of a broader strategic recalibration. While India continues to pursue supply-chain diversification and the global “China+1” manufacturing strategy, completely excluding Chinese participation in upstream electronics components has proven difficult.

For policymakers, the revised framework attempts to balance economic pragmatism with strategic safeguards. Minority participation is now easier, but controlling stakes remain restricted.