India May Relax Restrictions on Chinese Investments Amid Calmer Border Relations

India's stance on Chinese investments might soften if the ongoing peace at the border between the two nations continues. This development comes as India signals a possibility of lifting the investment curbs that have been in place for the last four years.

Reduced Border Tensions Could Lead to Economic Thaw

The two nations, both possessing nuclear weapons, have seen tensions along their shared border ease, a factor which is paramount to improving economic ties, according to Rajesh Kumar Singh. Singh, who is a senior official in India's industrial policy sector, shared this insight with Reuters during the World Economic Forum in Davos.

India has had stringent measures in place since 2020 to scrutinize investments from neighboring countries, including a multi-layered vetting process and mandatory security clearances. These steps were heightened in response to a deadly border clash that claimed the lives of soldiers from both sides, aggravating the relationship between India and China.

Impact of Curbs on Bilateral Investments

The implications of the heightened investment scrutiny have been significant, disrupting billions of dollars in projects and investments from companies such as Chinese automakers BYD and Great Wall Motor.

However, with the border situation appearing to stabilize, investment policies could return to normal, remarked Singh, who serves as the secretary at the Department for Promotion of Industry and Internal Trade. While he stopped short of providing a specific timeline for easing the investment restrictions, he did emphasize that peaceful border conditions play a critical role in fostering investment relations.

India's Welcoming Approach to Foreign Investment and Ongoing Talks

Despite recent setbacks, India has made considerable progress in opening up to foreign investments over the years, reducing or eliminating foreign ownership limitations in several sectors and offering automatic approvals. Moreover, even with the border conflicts, China still remains India's top import source, with bilateral trade skyrocketing to nearly $114 billion in the fiscal year ending March.

India and China have engaged in diplomatic and military discussions to mend their ties, with peaceful border conditions being a principal concern. India's Foreign Minister, Subrahmanyam Jaishankar, previously stressed the importance of de-escalating the situation in the western Himalayas.

Looking forward, India may consider a broader mechanism to review foreign investments from all countries, akin to practices in the U.S. and Australia, suggested Singh. This step, however, has not been decided as the nation aims to sustain a hospitable environment for investment inflows.

India, China, Investments