Rethinking FDI

Policy must evolve with changing realities

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The Union Cabinet on Tuesday approved changes to rules governing investment from countries sharing land borders with India, otherwise called land-border countries (LBCs). This is a pragmatic decision. However, India’s regime of foreign direct investment (FDI) needs to evolve with the changing global economic and geopolitical environment.

The Union government had restricted FDI from LBCs in 2020 through Press Note 3. It was then argued that the change attempted to curb opportunistic acquisitions of Indian companies during the crisis caused by the pandemic. As a result, entities from countries that shared land borders with India were allowed to invest only through the government route. One of the reasons for the policy change was to restrict investment from China due to border tensions. Once those tensions eased and the pandemic’s impact receded, Indian businesses started demanding a relaxation in restrictions. On its part, the government selectively allowed such investment from LBCs, particularly China. The success in developing an ecosystem for Apple Inc is a notable example.