India may ease FDI norms for solar industry to attract Chinese investment, but tighten grip on IT, data

Prime Minister Narendra Modi and Chinese President Xi Jinping

India has initiated discussions to identify sectors in which rules pertaining to Foreign Direct Investment (FDI) can be eased, specifically coming from China, potentially paving way for sectoral and country-specific tweaks to Press Note 3, government sources have told Moneycontrol on condition of anonymity.

The discussions have focused on easing FDI rules for renewable energy sectors such as solar, that could benefit from Chinese investments and expertise, while also ensuring stricter scrutiny for areas like information technology and data, officials said.

“Press Note 3 is under active discussion and is nearing the finalisation stage. Inter-ministerial consultations with the Department for Promotion of Industry and Internal Trade (DPIIT) and the Ministry of Corporate Affairs (MCA) are already underway, and a draft framework is ready. The government is considering changes in certain sectors, particularly solar, and those where the domestic industry has sought relaxations. The focus is to balance investment inflows while safeguarding sensitive areas,” one of the officials quoted above said.

At the same time, the government is also reviewing FDI norms for sectors like information technology and data-driven services, to ensure that there are no security or strategic risks before opening up further, the first official told Moneycontrol.

The discussions are at a nascent stage and any decision hinges on a green signal from the Prime Minister’s office, a second official said.

“There are discussions at the level of officials if there are sectors in which we can ease FDI from China, but no final decision has been taken,” the official added.

To ward off any attempt at opportunistic takeover or acquisition of Indian companies, the Centre had amended the FDI policy, specifically Press Note 3, in April 2020.

“Inter-ministerial consultations are progressing, and discussions are on. The idea is to streamline approvals and give more clarity to investors while retaining adequate safeguards in strategic sectors,” a third official said.

Under Press Note 3, an entity of a country, sharing land border with India or where the beneficial owner of an investment in India is situated in or is a citizen of any such country, can invest only through the government route.

These amended rules under Press Note 3 came into force from April 22, 2020, increasing scrutiny over FDI from China as well.

Discussions on easing FDI norms for Chinese investments come at a time when the bilateral relationship between New Delhi and Beijing has improved, with both nations hosting key dignitaries ahead of Prime Minister Modi’s scheduled China visit later in August. Read More

Last month, Finance Minister Nirmala Sitharaman had acknowledged issues arising from Press Note 3, citing that restrictions have posed hurdles in renewable energy projects that require technical inputs from Chinese experts. Read More

FM Sitharaman said there have been increasing requests from stakeholders for further access. “It’s not only from our side but also from China. There is some work on that front with External Affairs Minister S Jaishankar visiting Beijing recently. But I can't say how far it will go. It might help the economy, but a sense of caution will have to be built in.” Read More

In the Economic Survey for 2023-24, Chief Economic Adviser V Anantha Nageswaran had floated the idea that India needs to strike the right balance between goods and capital imports from China, highlighting how the nation can take advantage of the China+1 strategy.

The Survey pointed at India’s ballooning trade gap with China, and prescribed a shift to more FDI from the neighbouring nation to lower this import dependency.