Govt Eases FDI Rules for Bordering Nations

GG News Bureau
New Delhi, 11th March: The Union Cabinet has approved changes to the Foreign Direct Investment (FDI) policy for countries sharing a land border with India, introducing clearer rules and a faster approval process to encourage investment in key sectors.

The revised policy aims to provide greater clarity to global investors while ensuring safeguards for national security and strategic industries.

Under the amended guidelines, investments with non-controlling beneficial ownership of up to 10 percent from land-bordering countries will be permitted through the automatic route, subject to sectoral caps and conditions. The investee company will be required to report relevant details to the Department for Promotion of Industry and Internal Trade (DPIIT).

The government has also introduced a definitive timeline of 60 days for processing investment proposals in specific manufacturing sectors that require approval under Press Note 3 (2020).

These sectors include capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer manufacturing.

According to the government, the faster decision-making process will help companies enter joint ventures, access advanced technologies and integrate with global supply chains more efficiently.

The Cabinet also approved incorporating a formal definition and criteria for determining “Beneficial Owner”, aligned with the standards under the Prevention of Money Laundering Rules, 2005. The beneficial ownership test will be applied at the level of the investor entity.

At the same time, the government has retained safeguards requiring that majority shareholding and control in the investee company remain with resident Indian citizens or Indian entities owned and controlled by them.

The original restrictions were introduced in April 2020 through Press Note 3 to prevent opportunistic takeovers of Indian companies during the COVID-19 pandemic. Under those rules, investments from countries sharing a land border with India—including cases where the beneficial owner was located in such countries—required government approval.

However, officials noted that the broad application of these restrictions also affected investment flows from global private equity and venture capital funds, especially when such funds had minor non-controlling investors from these jurisdictions.

The new guidelines are expected to unlock greater FDI inflows, particularly for startups, deep-tech sectors and advanced manufacturing, while maintaining oversight over strategic investments.

The government said the reforms would support the ease of doing business, strengthen domestic manufacturing capabilities and help integrate Indian companies into global value chains.

Officials added that increased FDI inflows would supplement domestic capital, promote technology transfer and advance the vision of Atmanirbhar Bharat, while enhancing India’s position as a preferred global investment destination.