Cabinet Approves Changes In FDI Rules For Investments From Countries Sharing Land Border With India
The Union Cabinet, chaired by Prime Minister Narendra Modi, on Tuesday approved amendments to India’s foreign direct investment (FDI) policy governing investments from countries that share a land border with India, aiming to streamline approvals and encourage investments in key manufacturing sectors.
The changes introduce clearer rules on beneficial ownership and faster approval timelines for investments in critical sectors such as electronic components, capital goods and solar manufacturing.
Under the revised policy, the government has incorporated a formal definition and criteria for determining “Beneficial Owner”, aligned with provisions under the Prevention of Money Laundering Rules, 2005.
The beneficial ownership test will be applied at the investor entity level. Investments where entities from land-bordering countries hold non-controlling beneficial ownership of up to 10 per cent will now be permitted through the automatic route, subject to sectoral caps and compliance requirements. Such investments will also require disclosure and reporting to the Department for Promotion of Industry and Internal Trade (DPIIT).
The Cabinet also approved a definitive 60-day timeline for processing investment proposals from land-bordering countries in specific manufacturing sectors. These sectors include capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer manufacturing.
The move is expected to enable companies to enter joint ventures, access advanced technologies and integrate with global supply chains more quickly.
However, the policy stipulates that in such cases majority ownership and control of the investee company must remain with resident Indian citizens or Indian-owned entities.
The current restrictions were introduced through Press Note 3 (2020) during the COVID-19 pandemic to prevent opportunistic takeovers of Indian companies. The rule mandated that investments from countries sharing land borders with India must receive government approval.
Over time, the government observed that these restrictions also affected investments from global private equity and venture capital funds, where investors from neighbouring countries might hold only minor, non-controlling stakes.
The Cabinet said the revised guidelines are intended to improve ease of doing business, boost FDI inflows and promote technology transfer.
The Cabinet expect the changes to encourage greater investment in advanced manufacturing sectors, strengthen domestic value addition and help Indian firms integrate with global supply chains, while supporting the objectives of Atmanirbhar Bharat.
The reforms are also expected to enhance India’s competitiveness as a preferred global investment destination while maintaining safeguards for national economic interests.
