“The change in the rule is expected to increase the share of Chinese funds in overall FDI to more than 2 per cent, the level it stood at before the Press Note 3,” the report by Crisil Intelligence said.
Between calendar years 2014 and 2019, cumulative FDI inflows from China, including Hong Kong, accounted for about 2 per cent of total FDI, which contracted to 0.27 per cent after the introduction of new rules in Press Note 3.
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Easing of Press Note 3 norms is expected to unlock a pipeline of pending proposals, potentially driving a near-term uptick in inflows from China, including Hong Kong, it said.
The entity expects the government move to accelerate FDI inflows into India, strengthening its domestic capabilities and reducing reliance on imports.
The government first introduced the rules in April 2020 in the wake of the onset of the Covid-19 pandemic to prevent opportunistic acquisitions of Indian firms in the downturn.
The real impact of the amendment will be visible over the medium to long term, the report expecting an acceleration in technology partnerships, collaborations and mergers and acquisitions which will help India move up the value chain across sectors and become a key player in the global value chain.
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The introduction of the time-bound 60-day approval window for capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer sectors is set to simplify and expedite collaborations between Indian and Chinese firms in emerging sectors, it said.
Citing government data, it said investment proposals totalling Rs 75,691 crore were received under the Press Note 3 and only Rs 13,625 crore got approvals.
“The proposals rejected formed approximately 5 per cent of the country’s average annual FDI inflow over the past five years,” it said.