India's foreign-investment policy can be summed up as "managed liberalization": a desperate hunger for foreign capital and technology, paired with an equally deep wariness of foreign control over the home market. It erects no visible investment barriers — instead it uses a thicket of laws, tax audits, and policy reversals to draw foreign investors in and then squeeze them, slowly. Getting into India is not hard; the hard part is turning a profit and then leaving with it intact.
The Shell of Liberalization, the Mind of Protectionism
Modi took office in 2014 and has now governed for twelve consecutive years. Over those twelve years India has gone out of its way to look open: its FDI stock doubled in eight years, and in 2022 it became the fourth-largest destination for foreign investment among developing countries. It abolished the Foreign Investment Promotion Board, cut 42,000 compliance requirements, and — through the 2023 Jan Vishwas ("Simple Trust") Act — decriminalized 183 minor violations. Merchandise exports rose from $314 billion to $451 billion. The goal is unmistakable: raise manufacturing's share of GDP from 15% to 25%.
But the shell is the shell, and the mind is the mind. India's protectionism has not vanished — it has merely gone into hiding. The country is desperate for foreign capital yet deeply wary of foreigners controlling its domestic market, and it is fond of defending domestic interest groups with arcane tools of legal compliance, tax audits, and policy change. The sunk costs and exit barriers that foreign investors face here are almost unmatched anywhere in the world. This brand of liberalization also carries a domestic political motive: nurturing a new class of crony capitalists loyal to the BJP to counter the old crony class tied to the Congress Party.
Three Foundational Obstacles: Land, Labor, and the Courts
Land. The 2014 LAFR Act was originally designed to protect small landowners, but it requires even PPP projects to win the consent of 70% of the affected landowners and to shoulder hefty resettlement costs. Once forced acquisition was taken off the table, the number of special-economic-zone proposals in India was cut in half. Foreign manufacturers hoping to build large production bases — Toyota, Kia, Samsung and the like — have had no choice but to go through joint ventures or SPVs, diluting their control from day one.
Labor. Any firm with more than 300 employees cannot dismiss a single worker without the state government's permission. And state governments, mindful of votes, almost never grant it. To extricate itself, General Motors paid severance more than seven times the statutory requirement to force out 1,000 unionized workers — and was rewarded with a union lawsuit that dragged on for years.
The courts. Indian contracts are about as reliable as Indian time. It is routine for courts to let a case drag on for a year or two, and enforcing international arbitral awards in India is riddled with uncertainty — India is a party to the New York Convention yet regularly refuses enforcement in substance on "public policy" grounds. White Industries won an arbitration worth A$4 million, then spent nine years stuck in Indian courts before finally prevailing through international arbitration. Avito's $60 million award against HSBC took eight to nine years to enforce. Not until the recent FSSPL case did India's Supreme Court show any willingness to align with international practice — and the reason is blunt: the FDI numbers looked so bad that some gesture had to be made.
The China Track: One Press Note, a Targeted Shutdown
Before 2020, capital from China (including Hong Kong) accounted for about 2% of India's foreign-investment inflows. After the Galwan Valley clash, India swiftly tied the border dispute to economic relations, and the number of active Chinese firms in India fell from more than 1,000 in 2019 to roughly 300 in 2024.
The truly lethal blow was Press Note 3 (PN3) of April 2020: investment from any country sharing a land border with India must obtain prior government approval. Which countries border India? Pakistan, Nepal, Bhutan, Bangladesh, Myanmar — and China. China accounts for 99.9% of investment into India from land-bordering countries, so PN3 is in effect a targeted ban aimed at China. Chinese FDI into India collapsed from $163.8 million in fiscal 2022 to $2.7 million in fiscal 2025.
Three Chinese firms ran into the wall in succession. In January 2020 Great Wall Motor announced the acquisition of GM's Maharashtra plant — a $1 billion bet on SUVs and EVs — only to be left hanging for two years after PN3, then to give up and exit entirely. BYD's $1 billion joint-venture plan was rejected outright; this time they did not even bother to drag it out. SAIC's MG brand was pushed into "Indianization," forced to sell its majority stake at a rock-bottom valuation to the local conglomerate JSW.
Phone makers faced a different playbook: India's Enforcement Directorate (ED) launched dawn raids and froze assets on charges of money laundering and tax evasion. Xiaomi had $680 million frozen (accused of moving money out since 2015 disguised as royalty payments — it made no difference that Xiaomi produced evidence showing 84% was genuine IP fees). OPPO was accused of evading ₹44 billion in taxes; vivo of fabricating expenses to shift profits; Huawei, too, had tens of millions of dollars frozen. In 2021–2022 Chinese phone brands generated ₹150 billion in Indian revenue and created over 75,000 local jobs — and were squeezed all the same.
The silver lining is that India hurts too. Without China's intermediate goods, electronic components, and solar panels, its domestic PLI scheme has run into a bottleneck. In March 2025 PN3 was finally relaxed: investors with beneficial ownership of no more than 10% may use the green channel, and joint ventures in key manufacturing sectors get expedited 60-day approval — "what I want, I'll give you faster; what I don't want, wait for notice."
The US Track: Allies Get Squeezed Too
E-commerce is fenced off by precision rules. India's foreign-investment policy draws a hard line between the "platform model" and the "inventory model": foreign capital is allowed only to run zero-inventory marketplaces, and selling from its own inventory is strictly banned — chopping off at once the pricing power and economies of scale that Amazon and its peers do best. India then issued Press Note 3 of 2016 and Press Note 2 of 2018, barring e-commerce platforms from selling products of suppliers in which they hold equity and capping any single supplier's sales at 25% of the platform's total. Flash sales, discounts, and cashback were all forbidden, and the 2020 Consumer Protection Rules added joint liability — if a third-party seller misbehaves, the platform pays.
Data must stay within the border. In 2018 the Reserve Bank of India required all payment data to be stored only on servers in India. Mastercard, which lagged in compliance, was indefinitely banned from issuing new cards in India — it held about a third of the Indian bank-card market. American Express and Diners Club were banned for six months.
Medical devices: price-capped and barred from leaving. In 2017 India forced cardiac-stent prices down by 75% to 85%, and extended the caps to knee implants the same year. When the American giants — Abbott, Medtronic, Boston Scientific — cried "unprofitable" and tried to withdraw, India invoked emergency legislation to ban the exit. In the nine months after the price caps, foreign direct investment flowing into India's medical-technology sector fell 59%.
In autos, leaving is harder than entering. Ford operated in India for 25 years and sold 1.2 million vehicles before closing all its factories in 2022. GM lost $1.1 billion, stopped selling in 2017, and sold its plant to Great Wall in 2020 — only to be blocked by PN3 and, on top of that, a union lawsuit; the asset still cannot be turned into cash.
The Europe Track: Taxes Retroactive, Treaties Torn
In 2012 India's parliament passed a tax-law amendment giving authorities the power to tax offshore share transfers between non-residents, with retroactive effect that in theory reaches back to 1962. Cairn Energy carried out an entirely legal internal reorganization in 2006; in 2014 it was hit with a $4.4 billion back-tax and penalty bill, and 10% of its equity (worth about $1 billion) was seized outright. Vodafone's earlier tax-free ruling was also overturned.
International arbitration was the last resort for European firms — and it worked. In 2020 a UN tribunal ruled against India, awarding Cairn more than $1.2 billion. Cairn registered the award in multiple countries and, in 2021, won authorization from a Paris court to seize Indian government property in France. Only then, in August 2021, did India repeal the retroactive-taxation clause.
But India switched to a new game — tearing up treaties. From 2016 it unilaterally terminated bilateral investment treaties with more than 50 countries, including the UK, France, Germany, and the Netherlands, and rolled out its own 2016 BIT model: the definition of "investment" was narrowed from "asset-based" to "enterprise-based"; most-favored-nation and umbrella clauses were deleted; and — most brutally — foreign investors were required to exhaust local remedies by litigating in Indian courts for five full years first, even though Indian economic cases routinely drag on for a decade. In countries whose treaties were terminated, FDI into India fell by an average of more than 30%.
Retail and heavy industry were treated the same way: Carrefour closed all its Indian stores and exited in 2014 (multi-brand retail was banned and local sourcing mandated); in 2022 the Swiss building-materials giant Holcim sold its two cement companies to Adani for $6.4 billion — Adani, whose back door leads to Modi.
India Hurts Too
Manufacturing reaches only 17.2% of GDP, far short of the 25% target. The PLI scheme has been poorly executed: raising iPhone production capacity to 20% is one of the few bright spots, but the vast majority of the 27 manufacturers that applied for IT-hardware subsidies miss their targets, and five large players have already quit white goods. The demographic dividend is a matter of timing; the BJP keeps winning "by a hair," and integrating the states remains a distant dream. Upstream dependence has barely budged: 72% of pharmaceutical active ingredients are imported, EV batteries require licensed technology, and there is no domestic supply of semiconductor chips. What does thrive is the "bathing-crab" business — India is a major conduit for re-export trade.
The Difference Between a Wall and a Trap
Iran's constitution spells it out plainly: Article 81 forbids granting foreigners the privilege of forming companies, and Articles 83 and 84 restrict the transfer of state assets and the hiring of foreign experts. Iran is a direct barrier — at least it does not lure people in and then kill them. India is different: it is a trap. On the surface it looks wonderful; in reality it is "earn along the way, spend along the way, and don't think of taking a single cent home."
So Guye's conclusion is blunt: getting into India is not hard, but turning a profit in India and then leaving with that profit intact is one of the hardest problems in all of global business. If you cannot solve that problem — you don't have to. Just don't invest.
This kind of resource and commercial nationalism will only multiply — Niger, Black Africa, and the Dutch semiconductor sector are all playing it out — and the demand for cross-border management consulting will only grow, not shrink.