The discussions come weeks after India said it will screen all foreign direct investment (FDI) from countries with which it shares a land border, a move it said was aimed at staving off takeovers when asset prices are depressed during the coronavirus pandemic.
But concerns had risen in the government the policy change could prompt Chinese investors to ramp up their investment in India as portfolio investors, purchasing company securities such as equities to gain control, officials in New Delhi said.
A third government source said India was concerned about Chinese state-run companies buying stocks of Indian companies.
The source added the FPI rules were likely to be similar to the recently announced FDI policy which didn't name China but applies to countries with which India shares a land border.
Atul Pandey, a partner at Indian law firm Khaitan & Co, said government screening could hit new capital inflows from China and Hong Kong and delay investment plans.