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3 Feb 2026·Source: The Hindu
4 min
EconomyInternational RelationsNEWS

India Reconsiders Regulations on Chinese Investments: Anuradha Thakur

Government reviewing Press Note 3 on Chinese investments, balancing security, investment.

The government is considering revising provisions of Press Note 3, which places additional clearances on investments coming from China. Economic Affairs Secretary Anuradha Thakur mentioned that this was not specifically part of pre-Budget discussions. Press Note 3, issued in 2020, specifies that any entity of a country sharing a land border with India can invest only after securing government approval. According to Ms. Thakur, the Department for Promotion of Industry and Internal Trade (DPIIT) handles the matter. She added that investments are not restricted, but there is an additional layer of checks due to Press Note 3. The Secretary also noted that the government is seeking to address negative net foreign direct investment by encouraging investments in India. The portfolio investment scheme route has been liberalized for persons resident outside India.

UPSC Exam Angles

1.

GS Paper 3 (Economy): Investment models, government policies and interventions

2.

Connects to the syllabus by addressing foreign investment, government regulations, and economic development

3.

Potential question types: Statement-based MCQs, analytical mains questions

Visual Insights

Evolution of Press Note 3

Timeline showing the key events related to Press Note 3 and FDI policy changes.

Press Note 3 was introduced to safeguard Indian companies from hostile takeovers during the COVID-19 pandemic. The current reconsideration reflects a need to balance national security with attracting foreign investment.

  • 1999Enactment of Foreign Exchange Management Act (FEMA)
  • 2016Significant liberalization of FDI policy across various sectors
  • April 2020Issuance of Press Note 3 due to concerns over opportunistic takeovers during the COVID-19 pandemic
  • 2021-2025Ongoing scrutiny and delays in investment approvals under Press Note 3
  • February 2026Government considers revising provisions of Press Note 3 to ease investment flows
More Information

Background

The regulation of foreign investment in India has evolved significantly over time. Initially, India followed a restrictive approach, particularly after independence, aiming to protect domestic industries. Over the decades, economic reforms led to a gradual liberalization, recognizing the importance of foreign capital for growth. This shift is reflected in changes to the Foreign Exchange Management Act (FEMA) and related policies. Key milestones in this evolution include the economic liberalization of 1991, which marked a significant departure from the earlier protectionist policies. This period saw the introduction of measures to attract foreign investment, including the dismantling of licensing requirements and the opening up of various sectors to foreign participation. The establishment of the Foreign Investment Promotion Board (FIPB) aimed to streamline the approval process for foreign investment proposals. The legal and constitutional framework governing foreign investment in India is primarily based on the FEMA, which regulates foreign exchange transactions, including investments. The government's power to regulate foreign investment also stems from its inherent authority to manage the economy and protect national interests. Various notifications and press notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) provide specific guidelines and conditions for foreign investment in different sectors. These regulations are subject to judicial review to ensure they are consistent with the Constitution and other laws. India's approach to foreign investment is also influenced by its international commitments, including those under the World Trade Organization (WTO). These commitments require India to provide fair and non-discriminatory treatment to foreign investors. However, India retains the right to impose reasonable restrictions on foreign investment to protect national security, public order, and other essential interests.

Latest Developments

In recent years, India has been actively pursuing policies to attract more foreign investment, particularly in manufacturing and infrastructure. The Make in India initiative aims to promote domestic manufacturing and reduce dependence on imports. The government has also been focusing on improving the ease of doing business to create a more favorable environment for foreign investors. However, concerns about national security and strategic interests have led to increased scrutiny of investments from certain countries, particularly China. The introduction of Press Note 3 in 2020 reflects this cautious approach, requiring government approval for investments from countries sharing a land border with India. This measure has sparked debates about its impact on foreign investment flows and the need to balance economic interests with security considerations. The future outlook for foreign investment in India remains positive, driven by the country's large and growing economy, its demographic advantages, and its ongoing reforms. The government is expected to continue to refine its policies to attract more foreign investment while addressing concerns about national security and ensuring a level playing field for domestic industries. Further liberalization of the portfolio investment scheme could also boost foreign investment inflows. Challenges remain, including bureaucratic hurdles, infrastructure gaps, and regulatory uncertainties. Addressing these challenges will be crucial to realizing India's full potential as a destination for foreign investment. The government's ability to strike a balance between promoting economic growth and safeguarding national interests will be key to shaping the future of foreign investment in India.

Frequently Asked Questions

1. What is Press Note 3 and why is it important for UPSC prelims?

Press Note 3, issued in 2020, mandates that any entity from a country sharing a land border with India can invest only after securing government approval. It's important for prelims as it relates to foreign investment policy and India's economic relations, especially with China.

Exam Tip

Remember the year of issue (2020) and the core requirement: government approval for investments from bordering countries.

2. What is the main objective of revisiting Press Note 3 regarding Chinese investments?

The government is considering revising Press Note 3 to balance security concerns with the need for foreign investment. The aim is to encourage investments in India while ensuring that national security is not compromised.

3. How does Press Note 3 impact India's foreign investment policy?

Press Note 3 adds an extra layer of checks on investments from countries sharing a land border with India. While it doesn't restrict investments entirely, it requires government approval, potentially slowing down the investment process.

4. What are the potential pros and cons of relaxing Press Note 3 regulations?

Relaxing the regulations could lead to increased foreign investment and economic growth. However, it could also raise concerns about national security and potential risks associated with investments from certain countries.

5. Why is the government reconsidering Press Note 3 now?

The government is seeking to address negative net foreign direct investment and encourage investments in India. Revisiting Press Note 3 is part of a broader effort to create a more favorable environment for foreign investors while addressing security concerns.

6. According to Anuradha Thakur, which department is responsible for handling matters related to Press Note 3?

According to Anuradha Thakur, the Department for Promotion of Industry and Internal Trade (DPIIT) handles matters related to Press Note 3.

7. How does the current review of Press Note 3 relate to the 'Make in India' initiative?

The review of Press Note 3 is connected to the 'Make in India' initiative as the government aims to attract more foreign investment in manufacturing and infrastructure, which are key components of the initiative. Balancing security concerns with investment promotion is crucial for the success of 'Make in India'.

8. What is the historical context of regulating foreign investment in India?

Initially, India followed a restrictive approach to foreign investment after independence to protect domestic industries. Over time, economic reforms led to liberalization, recognizing the importance of foreign capital for growth. This evolution is reflected in changes to the Foreign Exchange Management Act.

9. What reforms are needed to further improve India's attractiveness as an investment destination, considering Press Note 3?

Streamlining the approval process for investments, ensuring transparency, and providing a stable regulatory environment are crucial. Addressing concerns about bureaucratic delays and policy uncertainty can further enhance investor confidence.

10. What are the key dates to remember regarding Press Note 3 for the UPSC exam?

The key date to remember is 2020, the year Press Note 3 was issued.

Exam Tip

Focus on the year of issue and the context of why it was implemented.

Practice Questions (MCQs)

1. With reference to Press Note 3, issued in 2020, consider the following statements: 1. It mandates government approval for investments from entities of countries sharing a maritime border with India. 2. It is administered by the Department for Promotion of Industry and Internal Trade (DPIIT). Which of the statements given above is/are correct?

  • A.1 only
  • B.2 only
  • C.Both 1 and 2
  • D.Neither 1 nor 2
Show Answer

Answer: B

Statement 1 is INCORRECT: Press Note 3 applies to countries sharing a LAND border with India, not a maritime border. Statement 2 is CORRECT: The Department for Promotion of Industry and Internal Trade (DPIIT) handles the matters related to Press Note 3, as mentioned by Economic Affairs Secretary Anuradha Thakur.

2. Which of the following is the primary objective of the 'Make in India' initiative?

  • A.To promote foreign portfolio investment in India
  • B.To promote domestic manufacturing and reduce dependence on imports
  • C.To liberalize the financial sector
  • D.To increase agricultural exports
Show Answer

Answer: B

The 'Make in India' initiative aims to promote domestic manufacturing and reduce dependence on imports. This is achieved through various policy measures and incentives to encourage companies to manufacture goods in India.

3. Consider the following statements regarding the Foreign Exchange Management Act (FEMA): 1. It regulates foreign exchange transactions, including investments in India. 2. It was enacted in 1973. 3. It aims to facilitate external trade and payments. Which of the statements given above is/are correct?

  • A.1 and 2 only
  • B.1 and 3 only
  • C.2 and 3 only
  • D.1, 2 and 3
Show Answer

Answer: B

Statement 1 is CORRECT: FEMA regulates foreign exchange transactions, including investments in India. Statement 2 is INCORRECT: FEMA was enacted in 1999, replacing the earlier Foreign Exchange Regulation Act (FERA). Statement 3 is CORRECT: FEMA aims to facilitate external trade and payments and promote the orderly development and maintenance of the foreign exchange market in India.

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