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The Government of India has approved relaxations to the foreign direct investment ("FDI") regime applicable to investments from countries sharing a land border with India. These changes were approved by the Union Cabinet on March 10, 2026 and modify the framework originally introduced under Press Note 3 of 2020 ("Press Note 3") and consequently incorporated into the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 ("NDI Rules"). These changes will greatly help reducing ambiguity around some of the provisions of Press Note 3.
Key Changes:
- The determination of "beneficial ownership" for the purposes of these investments will align with the definition prescribed under the Prevention of Money Laundering Rules, 2003, with the test of beneficial ownership being made at the level of the investor entity (and not at the investee company level).
- Investments where investors from land-bordering countries hold up to 10% beneficial ownership without control will now be permitted under the automatic route, subject to applicable sectoral caps and conditions and with an intimation to the Government by the investee company.
- An expedited approval process of 60 days will apply to certain manufacturing sectors including capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer, with the Government having the ability to revise this list of sectors.
The amendments represent a much-awaited relaxation of the restrictions introduced in 2020 and is another step in India's broader FDI liberalisation framework. The expedited approval process should also encourage development of these key sectors identified by the Government as 'sunrise sectors' and provide a fillip to the Government of India's Make-in-India plans. The devil of course lies in the details and the formal amendments to the existing PN3 framework (including under the NDI Rules) when published, would be closely scrutinised. Whilst PN3 ambiguity does remain, these amendments have provided much needed clarity and are a welcome first step.
Please click here for a link to the press release issued by the Government of India in this regard.
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