Modi government makes it easier for Chinese companies to invest
What's the story
The Indian government has amended Press Note 3 of 2020, easing foreign direct investment (FDI) rules for companies from countries sharing land borders with India. The move is expected to facilitate new investments in the electronics components sector by promoting joint ventures between Indian manufacturers and Chinese suppliers. The decision was taken at a Cabinet meeting chaired by Prime Minister Narendra Modi.
Industry demand
Domestic electronics industry pushing for faster approvals
The local electronics industry has been pushing for faster approvals to build supply chains and scale component manufacturing. Indian manufacturers are looking to partner with Chinese firms for technology access, scale, and cost efficiencies. Several collaborations are being structured around the government's Electronics Component Manufacturing Scheme (ECMS), with firms seeking quicker approvals to tap into the ₹22,919 crore incentive pool earmarked for component manufacturing.
Regulatory changes
Key changes in amended Press Note 3
The amended FDI rules for investments from land-bordering countries define beneficial ownership as per the Prevention of Money Laundering Rules, 2005. It applies at the investor entity level. Investments with beneficial ownership from such countries up to 10% and non-controlling will be allowed via the automatic route, subject to sectoral caps and reporting requirements to DPIIT. The government will also fast-track approvals within 60 days for investments in select manufacturing sectors like electronic capital goods, electronic components, polysilicon, and ingot-wafer.
Market impact
Anticipated impact on high-value segments
Chinese participation is tipped to scale up high-value segments like printed circuit boards (PCBs), display modules, camera sub-assemblies, and also batteries. A senior executive at a leading smartphone and electronics company said to Moneycontrol, that the move will accelerate applications under the Electronics Components Manufacturing Scheme (ECMS) 2.0. "The easing will likely involve relaxation around certain shareholding thresholds," the executive said.
Investment boost
Need to balance interests in component ecosystem
The relaxation of FDI rules addresses a key hurdle that had slowed investment proposals involving Chinese partners, who dominate the global electronics supply chain. "India needs to collaborate with Chinese partners while protecting domestic interests, as they remain key players in the components ecosystem," said the founder of a listed electronics manufacturing company. Another executive added that the government's concerns were mainly around majority Chinese ownership.
Business facilitation
ICEA chairman welcomes decision
Pankaj Mohindroo, Chairman of ICEA, welcomed the 60-day decision window as a step toward improving ease of doing business. He said it will further encourage higher domestic value addition in the electronics supply chains manufacturing sector. "This reform will help companies move faster in forming technology partnerships, expanding manufacturing in India and integrating with global value chains," he added.
Policy evolution
Press Note 3 rules were tightened after Galwan Valley clash
Introduced in April 2020, Press Note 3 mandated prior government approval for investments from entities in nations sharing land borders with India. The rules were tightened after the Galwan Valley clash in June 2020, which led to a sharp deterioration in India-China relations. Despite the investment restrictions, trade between the two countries has continued to grow significantly. Several electronics manufacturers are awaiting approvals for component manufacturing proposals under ECMS 2.0.