The Union Cabinet, chaired by Narendra Modi, has approved amendments to India’s foreign direct investment (FDI) policy governing investments from countries that share a land border with India.
The changes aim to streamline approval processes, clarify ownership rules, and encourage investments in key manufacturing sectors, including electronics and renewable energy components.
Clear Definition of Beneficial Ownership Introduced
Under the revised policy, the government has introduced a formal definition and criteria for “Beneficial Owner”, aligning it with provisions under the Prevention of Money Laundering Rules, 2005.
The beneficial ownership test will be applied at the investor entity level.
According to the new guidelines, investments where entities from land-bordering countries hold non-controlling beneficial ownership of up to 10% will be allowed through the automatic route, provided they comply with sectoral caps and regulatory requirements.
Such investments must also be disclosed and reported to the Department for Promotion of Industry and Internal Trade (DPIIT).
Faster Approval Timeline for Manufacturing Investments
The Cabinet has also approved a 60-day timeline for processing investment proposals from land-bordering countries in specific manufacturing sectors.
These sectors include:
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Capital goods
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Electronic capital goods
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Electronic components
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Polysilicon manufacturing
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Ingot-wafer manufacturing
Officials say the move will enable companies to form joint ventures, access advanced technologies, and integrate with global supply chains more quickly.
Majority Ownership to Remain with Indian Entities
Despite the relaxations, the revised policy requires that majority ownership and control of the investee company must remain with resident Indian citizens or Indian-owned entities.
This provision aims to ensure that strategic control remains within India while still allowing foreign participation.
Background of Press Note 3 (2020)
The restrictions on investments from neighbouring countries were first introduced through Press Note 3 (2020) during the COVID-19 pandemic.
The rule required government approval for any investment from countries sharing land borders with India in order to prevent opportunistic takeovers of Indian companies during the economic slowdown.
Over time, the government observed that the rule also affected global private equity and venture capital investments, where investors from neighbouring countries often held only small, non-controlling stakes.
Boost to Manufacturing and Global Supply Chain Integration
The government said the revised policy aims to improve ease of doing business, increase FDI inflows, and promote technology transfer.
Officials believe the reforms will encourage greater investment in advanced manufacturing sectors, strengthen domestic value addition, and help Indian companies integrate more effectively with global supply chains.
The changes are also expected to support the vision of Atmanirbhar Bharat, while maintaining safeguards to protect India’s economic and strategic interests.
