In April 2020, as the world struggled with the Covid-19 pandemic and soldiers from India and China moved towards a large-scale border stand-off, New Delhi amended its foreign direct investment (FDI) policy to require prior government approval for all investments from countries sharing a land border with India – a measure directed at China.
Nearly six years on, India has changed its FDI policy again. It is a significant move for India-China relations.
During the pandemic, the FDI regulation served two purposes. First, it was a supply chain wake-up call. Covid-19 exposed India’s acute vulnerability in global supply chains. India needed to build manufacturing capacity. Second, it was an economic response to the brewing border crisis. As the stand-off with China intensified, New Delhi tied the relationship, including investment approvals, to stability at the Himalayan border.
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