Ankit Singh Mehar, Assistant Manager | corplaw@vinodkothari.com

The Central Government, on March 10, 2026, relaxed the restrictions placed in 2020 on FDI from countries sharing land-border with India (LBC) by (a) prescribing a strict approval timeline of 60 days in case of specified sectors/activities of manufacturing in capital goods, electronic capital goods, electronic components etc and (b) by allowing certain investments under automatic route where the investors have non-controlling LBC Beneficial Ownership of up to 10%. The objective is to facilitate ease of doing business and attract FDI inflows especially in critical sectors. Necessary amendment in the FEMA (Non-Debt Instruments) Rules, 2019 (‘NDI Rules’) and issuance of press note by DPIIT amending the Consolidated FDI Policy is pending.

Background

Presently, in terms of rule 6 of NDI Rules and FDI Policy, any investment by an entity of LBC or where the beneficial owner of an investment into India is situated in or is a citizen of such LBC, requires prior approval of the government. Any transfer of ownership of existing or future FDI that results in the beneficial ownership of the investment shifting to a person who is a citizen of, or situated in, a LBC also requires prior government approval. These requirements were notified pursuant to Press Note No 3 dated April 17, 2020 and subsequent notification of FEMA (Non Debt Instruments) Amendment Rules, 2020. Refer to our earlier write-up titled India seals its borders to corporate acquisitions dealing with the said press note. Our you-tube video covering the overview of FDI can be accessed here.

In order to meet the objectives of Aatmanirbhar Bharat and increase FDI inflows, India has decided to revisit the restrictions placed during Covid pandemic to curb opportunistic takeovers/acquisitions. While the amendment notification is awaited, in this article we discuss the changes approved.

1. Investments permitted under Automatic route 

An investor entity will be able to invest under automatic route only if the investor has non-controlling LBC beneficial ownership (‘BO’) of upto 10% in such investor entity. In case the BO stake of LBC in such an investor entity is > 10%, prior approval of the government shall be required. The definition of ‘beneficial ownership’ shall be the same as specified in Prevention of Money Laundering Rules, 2005. 

For example, if X Inc intends to make FDI in India and 15% of X Inc. is held by a Chinese company then the investment will be under approval route since the stake held in X Inc. is beyond the 10% threshold.

2. Ambit of ‘beneficial owner’under PMLA

3. Fixed 60 days timeline for government approval for critical sectors

Presently, the timeline for obtaining government approval for FDI ranges between 12–14 weeks.

Source: Annexure V of SOP for Processing FDI Proposals

In cases investee entities are engaged in the specified sectors / activities concerning manufacturing of following goods, a timeline of 60 days shall be adhered to for government approval:

• Capital goods
• Electronic capital goods
• Electronic components
• Polysilicon and ingot-wafer 

The majority shareholding and control of the Investee entity should be with the residents. The Government will continue to assess the proposals on a case to case basis and accord approval. Recently, an electronics manufacturer company received MEITY approval for receiving investment of 26% in a joint venture from a Chinese investor.

Way forward

As discussed in the press release of the government, restrictions on foreign investment by entities in LBC which may have only non-strategic, non-controlling interests was seen as adversely affecting investment flows from investors including global funds such as PE/ VC funds. By loosening the said restrictions cautiously, greater FDI inflows and speedier fundraising can be encouraged, particularly into startups and deep techs while protecting the nation’s security interests. The relaxed norms aims to increase access to technology, facilitate ease of doing business for Indian entities and strengthening India’s position as an attractive destination for investment and manufacturing. 

• Refer our other resources on FDI here