India Eases Press Note 3 Restrictions On Investments From Land-bordering Countries

On March 10, 2026 the Indian government approved amendments to India’s FDI regime relating to investments from countries sharing a land border with India. These are Afghanistan, Bangladesh, Bhutan, China, Myanmar, Nepal and Pakistan. The changes represent a calibrated relaxation of the restrictions introduced in 2020 through Press Note 3, while retaining regulatory safeguards relating to ownership, control, and national security considerations. The revised framework aims to facilitate capital inflows, particularly in manufacturing and technology sectors, while continuing to monitor investments that may raise strategic concerns.

Background: PN 3 was introduced during COVID-19 to prevent opportunistic takeovers of Indian companies by investors from the aforesaid six countries. Any direct or indirect investment into India by an entity situated in or whose beneficial owner was situated in those countries required prior government approval. There was no defined threshold for determining “beneficial ownership” and, absent minimum shareholding level, even small minority stakes triggered the approval requirement. This created uncertainty and slowed cross-border investments involving such investors.

Key Changes: There are two key changes viz., introduction of a 10% threshold and fast track approval for certain sectors. Firstly, now there is a 10% threshold for determining beneficial ownership. If investors hold non-controlling beneficial ownership up to 10%, no prior regulatory approval is required and investment is under the automatic route, subject to applicable sectoral caps and FDI conditions. Beneficial ownership will be assessed at the level of the investing entity, and the Indian investee company will be required to disclose relevant ownership details when reporting the investment. Many VC and PE funds have partners from multiple jurisdictions. The new ownership threshold reduces regulatory uncertainty for such funds when investing in India. Secondly, for investments in specified manufacturing sectors, proposals which require government approval will be processed within 60-days. This should help reduce delays to investments requiring government approval. These sectors include capital goods manufacturing; electronic capital goods; electronic components, amongst others. In such cases, the majority ownership and control of the Indian investee entity must remain with resident Indian citizen(s) or Indian-owned entity(ies), reflecting the government’s continuing focus on national security and strategic oversight.

What this means: Investments can be structured so beneficial ownership remains below the 10% threshold and non-controlling so as to qualify under the automatic route. The relaxation represents an important step towards addressing long-standing concerns regarding past uncertainty under PN 3. The changes approved by the Cabinet will become effective once a formal notification is issued and until then the existing framework will continue to apply. Investors should continue to carefully assess ownership structures and potential regulatory exposure under the current regime. Greater clarity is expected once the formal notification is issued which will determine the precise scope and implementation of these relaxations.

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