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Relevance: GS-III Economy, Liberalisation & Energy; GS-II India-China Neighbourhood Source: Dept of Expenditure order, June 2026

India Eases Rules for Chinese Power Equipment Firms

1 · What exactly happened?

On 24 June 2026, India’s Finance Ministry made a significant exception. It allowed four Chinese-linked power equipment companies to bid for government power projects without having to go through strict security registrations. This exemption is only valid for two years.
These companies make highly specialised electrical grid equipment. Since the 2020 border clash with China, India had practically shut the door on Chinese companies. This temporary, narrow opening—requested by the Power Ministry shows a slight easing in India’s tough stance on Chinese involvement in key sectors.

2 · Understanding the two ‘Walls’ built in 2020

The Two Curbs: After the Galwan clash in 2020, India built two legal walls against China. First, GFR Rule 144(xi) stopped Chinese firms from winning government contracts without special registration. Second, Press Note  stopped Chinese companies from investing money (FDI) in India without prior government approval.
The Current Exemption
A narrow two-year window
Four specific Chinese-linked firms can now supply heavy electrical equipment to government companies (like Power Grid) without registering first. It is a temporary fix, not a permanent rule change.
Why the wall was built
Defense against takeovers
During the pandemic and border tensions, India introduced these rules to prevent hostile takeovers of Indian companies and to stop buying critical equipment from unfriendly neighbors.
Another recent change
The 10% FDI relaxation
In May 2026, the government also tweaked FDI rules. Companies with up to 10% Chinese ownership can now invest automatically without needing special prior approval.
The Dilemma
Economics vs. Security
Chinese technology is often cheaper and speeds up India’s energy goals. However, allowing it hurts local Indian manufacturers (whose stock prices fell after this news) and raises security concerns.
  • How Registration Works: Normally, companies from countries sharing a land border with India must register with the DPIIT and get cleared by the Home and Foreign Ministries before bidding. This new order lets four firms skip this for two years.
  • FDI Routes: The “automatic route” means a foreign company can invest without asking the government first. The “government route” requires prior permission. Press Note 3 forced all Chinese money into the ‘government route’. The recent 10% tweak re-opens a small ‘automatic’ door.
  • The Paradox: India tried to block Chinese capital for years, but our imports of Chinese goods still skyrocketed. Allowing select Chinese technology now is an attempt to boost local manufacturing under Atmanirbhar Bharat.
UPSC Prelims Quick Facts
GFR Rule 144(xi) A 2020 rule requiring companies from border-sharing countries to register before bidding on Indian government contracts.
Press Note 3 (2020) A policy that forced all Foreign Direct Investment (FDI) from border-sharing countries to require prior government approval.
DPIIT Department for Promotion of Industry and Internal Trade. The body that screens foreign bidders.
FDI Routes Automatic Route (no prior permission needed) vs. Government Route (strict permission needed).
China Plus One A global business strategy where companies avoid investing only in China and diversify into other countries (like India).
PGCIL Power Grid Corporation of India Ltd. The central government utility that buys this heavy electrical equipment.
MCQ Practice Question
Q. With reference to India’s rules on capital and procurement from border countries, consider the following statements:

  1. Press Note 3 (2020) mandated prior government approval for FDI from all countries sharing a land border with India.
  2. Under the FDI policy, the “automatic route” allows investment without prior government approval.
  3. Rule 144(xi) of the General Financial Rules, 2017 governs foreign direct investment, requiring prior approval for equity from border countries.

Which of the statements given above is/are correct?
(a) 1 and 2 only    (b) 2 and 3 only    (c) 1 and 3 only    (d) 1, 2 and 3
Answer: (a) 1 and 2 only

  • Statement 1 — Correct: Press Note 3 made it mandatory to get prior approval for FDI coming from countries sharing a land border with India.
  • Statement 2 — Correct: The “automatic route” means investments can flow without needing prior government clearance.
  • Statement 3 — Incorrect: Beware the trap! GFR Rule 144(xi) controls public procurement (government buying goods/services), not Foreign Direct Investment (FDI). FDI is governed by Press Note 3 under FEMA.
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