India’s FDI Scrutiny: Analyzing the Impact of Press Note 3 in FY26

The Department for Promotion of Industry and Internal Trade (DPIIT) has released FDI data for the 2025-26 financial year, revealing a highly restrictive environment for investments originating from China. Out of the total proposals reviewed, only one Chinese FDI project, valued at ₹1 crore, received government approval. This trend underscores the sustained implementation of Press Note 3, a policy amendment introduced in 2020 that mandates prior government approval for any foreign direct investment from countries sharing a land border with India.

The primary objective of this policy is to prevent 'opportunistic takeovers' of Indian companies during periods of economic vulnerability or geopolitical tension. By requiring a rigorous security and economic vetting process, the government aims to protect critical sectors from potential hostile influence. While the policy has been effective in curbing direct inflows, it has also led to a shift in investment patterns, with capital often being routed through third-party jurisdictions like Hong Kong, which saw 13 approvals in the same period.

For India, this approach represents a delicate balancing act between maintaining an open economy and ensuring national security. While FDI is crucial for capital formation, technology transfer, and employment generation, the government has prioritized strategic autonomy. Critics argue that such stringent measures might deter potential investors and complicate the ease of doing business; however, the government maintains that national security remains non-negotiable. As India continues to position itself as a global manufacturing hub, the evolution of these investment norms will remain a critical area of study for policymakers and economists alike.