India to keep money curbs on neighbours in place despite thawing ties with China

India will continue to enforce investment restrictions on neighboring countries, despite recent diplomatic advancements with China. This announcement follows a pact aimed at improving patrol protocols along their disputed Himalayan border. The agreement is expected to facilitate dialogue between Prime Minister Narendra Modi and China's President Xi Jinping at an upcoming BRICS summit in Russia.

Finance Minister Nirmala Sitharaman addressed the topic during a recent event at Wharton Business School, emphasizing the need for caution regarding foreign direct investment (FDI). “I cannot blindly receive foreign direct investment because I want money for investment, forgetful or unmindful of where it is coming from,” she said, underlining the importance of safeguarding national interests.

While India is open to enhancing business and investment opportunities, Sitharaman insisted that certain restrictions must remain in place due to the sensitive geopolitical landscape. “We want business, we want investment, but we also need some safeguards, because India is located in a neighbourhood which is very, very sensitive,” she added.


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The source of investments, rather than the identity of the investors, is a primary concern for Indian authorities. This continued scrutiny is seen as crucial for national security, especially after the 2020 border clash with China that has strained relations and hindered the flow of capital, technology, and talent between the two countries.

In response to rising tensions, India tightened its vetting processes for investments from neighboring nations, primarily focusing on companies linked to China. This scrutiny has led to significant capital avoidance, effectively redirecting billions of dollars from major Chinese firms, including BYD and Great Wall Motor, and complicating Indian companies with Chinese affiliations.

Despite these challenges, the demand for collaboration in high-growth sectors like electric vehicles, semiconductors, and artificial intelligence continues to grow. India’s trade relationship with China remains substantial, with imports from the country surging by 56% since the 2020 clash. This increase has nearly doubled India’s trade deficit with China to $85 billion.