New Delhi: The Modi government has reversed restrictions introduced by its ‘Press Note 3’, a curb on automatic investments coming in from countries with a land border with India (mainly China). Other countries that share land borders with India are Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan.The decision was taken in a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi.The opposition parties have hit out sharply, with Congress MP and General Secretary in-charge Communications, AICC, Jairam Ramesh, characterising India’s behaviour as one with its decision of “callibrated capitulation” to China.Ramesh said, “The decision of the Modi Govt to relax norms for FDI from China is not surprising. It is very much part of the Modi Govt’s callibrated capitulation to a country that was given a clean chit by Mr. Modi himself on June 19 2020 – after twenty jawans had been martyred in Eastern Ladakh.”The decision of the Modi Govt to relax norms for FDI from China is not surprising. It is very much part of the Modi Govt’s callibrated capitulation to a country that was given a clean chit by Mr. Modi himself on June 19 2020 – after twenty jawans had been martyred in Eastern…— Jairam Ramesh (@Jairam_Ramesh) March 10, 2026It is the Opposition’s charge that “Sino-Indian ties are being normalised on Chinese terms, even as India’s trade deficit in 2025 reached a record high of over USD 115 billion. The Modi Govt has also accepted the loss of patrolling rights in Ladakh’s Depsang, Demchok, and Chumar”.The Opposition has pushed the Modi government already on the defensive on its not wanting to discuss what the country’s PM and defence minister told the Army Chief when asked for political directions in the face of China’s assertion (and tanks) on the eastern border in August 2020, months after losing twenty troops to the Chinese.What was PN3?Introduced “to curb opportunistic takeovers/acquisitions of Indian companies due to the COVID-19 pandemic”, the Modi government had amended the FDI Policy vide Press Note 3(2020) [PN3] on April 17, 2020. No country, as per this amendment, which shares “a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, could simply invest in India. It could do so only after seeking special permissions by the government. Also, any transfer of ownership of any existing or future FDI in an entity in India from countries sharing a land border with India, also required government approval.In effect, PN3 moved nearly all Chinese investment from the automatic route – available to most countries – to a separate government route which needed security and political clearance, which even if allowed in some cases acted as a serious deterrent. As a result, Chinese foreign direct investment through the automatic route fell from USD 190 million in 2019 to just USD 0.6 million in 2024. There were minimal inflows via the government route.The rules were not an immediate response to the India-China border crisis in the same year when 20 Indian soldiers were killed in hand-to-hand combat at the border in Galwan between the Indian Army and the Chinese PLA. Introduced a month before the crisis erupted, PN3 “reflected Indian concerns about China opportunistically acquiring distressed Indian firms during the COVID-19 pandemic and about Chinese investment in sensitive sectors.”The immediate trigger was the People’s Bank of China increasing its shareholding in HDFC and acquiring a toehold stake of 1.01%. This was when HDFC’s stock prices were depressed. The subsequent border crisis, however, led to a significant tightening of these restrictions and this was often painted as a “masterstroke” by supporters of the Modi government.From Masterstroke to TurnaroundIn a remarkable turnaround, the Union Cabinet, after a meeting, has decreed that it should reverse its six year old policy, and is citing its benefits now.The government has defended its turnaround in a press release, that “the new guidelines will provide clarity and ease of doing business in India, and facilitate investments which can contribute towards greater FDI inflows, access to new technologies, domestic value addition, expansion of domestic firms and integration with global supply chain. This would help in leveraging and enhancing India’s competitiveness as a preferred investment and manufacturing destination. Increased FDI inflows would supplement domestic capital, support the objectives of Atmanirbhar Bharat, and accelerate overall economic growth.”There is more than one reason for the turnaround, the net outflow of foreign money, the implicit recognition of China as the world’s factory – India needing Chinese inputs – in almost all sectors. Doing this, also send signals to China that India is ready to overlook other issues between the two large neighbours.Foreign Minister S. Jaishankar has invoked the size of the Indian economy as a factor for India’s ability to stand upto what many see as China’s attempts to be more assertive on India’s borders after 2019. Jaishankar had said in a podcast in February 2023, “Look, they (China) are the bigger economy. What am I going to do? As a smaller economy, I am going to pick up a fight with the bigger economy? It is not a question of being reactionary, it’s a question of common sense….” His comments had come under sharp fire from the Opposition, the Congress termed him a “failed foreign minister”.Business Standard reports that while India has received minimal FDI from China, bilateral trade between the two nations has grown multi-fold.China has emerged the second-largest trading partner of India.In 2024-25, as per Business Standard, India’s exports to China contracted 14.5% from 2023-24. Imports, however, rose 11.52%. The trade deficit widened to USD 99.2 billion in 2024-25.During April-January 2025-26, India’s exports to China rose 38.37% to USD 15.88 billion, while imports rose 13.82% to USD 108.18 billion. Trade deficit was USD 2.3 billion.