DPIIT may take a relook at FDI restrictions from China in policy review: Sources

The Department for Promotion of Industry and Internal Trade (DPIIT) may take a relook at the FDI restrictions currently imposed on China as part of its overall review of the country’s FDI policy. Stakeholder consultations are still on and a final decision is yet to be taken, sources have said.

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“As far as the advise on easing of investment routes for Chinese companies to boost Indian exports is concerned, the DPIIT is already looking into what should be the overall revised FDI policy and is expected to examine the matter as well. It is working in that direction and doing stakeholder consultations. Let’s see what happens,” an official tracking the matter told businessline.

India introduced Press Note 3 in 2020 restricting FDI from China and other neighbouring countries sharing a land border with the country mandating that investments from these nations shall be permitted only with prior government approval. The objective was to prevent opportunistic takeovers or acquisitions of Indian companies.

The Economic Survey for 2023-24 released in July advocated increasing FDI from China to boost exports from the country. “Choosing FDI as a strategy to benefit from China plus one approach appears more advantageous than relying on trade. This is because China is India’s top import partner, and the trade deficit with China has been growing. As the US and Europe shift their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing from China, adding minimal value, and then re-exporting them,” the Survey said.

It cited the example of countries such as Vietnam, Mexico, Taiwan and South Korea, that were direct beneficiaries of the United States’ trade diversion from China while they saw a rise in Chinese FDI.

India’s exports to China in April-July 2024 dipped by 4.54 per cent to $ 4.8 billion while imports increased by 9.66 per cent to $35.85 billion, per the latest figures shared by the Commerce Department. 

Instead of focussing on the export-import numbers, one needed to see if value addition was increasing in the country, said Commerce Secretary Sunil Barthwal.

“No country in the world has been able to decouple with China including the US and the EU. In trade, you are dependent upon all countries that are part of the value chain. As long as you are part of the value chain, there will be exports and there will be imports. The point is are we moving up the value chain and whether high-value addition is happening domestically,” Barthwal said. 

Barthwal said that once a country exports more, the input requirement also increases and imports go up.

A total of 526 FDI proposals worth $11.9 billion were received and scrutinised under Press Note 3, between April 2020 and December 31 2023, of which 124 proposals were approved while 201 were rejected, per government figures.