Chinese investments into India have shrunk significantly since 2020 and a recent relaxation of rules may still not be enough to spark a rush of capital, according to a new report.
Asia’s largest economy accounts for around 0.32% of foreign direct investments into India compared with around 2% in 2020, Natixis Corporate and Investment Banking said in its report.
Six years of restrictions held back roughly $12 billion in proposed investments from nations sharing land borders with only about half cleared, Alicia Garcia Herrero, chief economist, Asia Pacific and Middle East at the bank, wrote. The bulk of such investments come from China.
In April 2020, New Delhi tightened scrutiny of inflows from nations sharing a border with the country through the so-called Press Note 3 rules. The curbs were mostly aimed at intensifying oversight amid deteriorating relations with China, which culminated in a deadly Himalayan clash later that year.
Economic ties with Beijing have since shown signs of thawing as high US tariffs reshaped global trade flows and the uncertainty caused by the US-Iran war weighed on growth outlook.
Earlier this year, India
rules allowing automatic approval for non-controlling ownership of as much as 10%, subject to compliance requirements, for investments from countries sharing a land border with it.
Revised rules narrow, but do not remove the government-approval required for China-linked FDI, the Natixis report said, adding that the reopening of investments is sector-specific and not economy-wide. India is opening to Chinese investment where it has no choice, the report said.
That underscores the government’s caution, and proposals from large firms such as BYD Co. would still face same screening.
Yet, policymakers have been pitching to boost investments from China. India must shun protectionist policies and leverage its low manufacturing wages to attract capital from China in an effort to create jobs and boost exports, Rakesh Mohan, a part-time member of Modi’s Economic Advisory Council, said in an interview.