Cabinet Eases FDI Rules for Bordering Nations, Sets 60-Day Approval

The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved significant amendments to India’s Foreign Direct Investment (FDI) policy governing investments from countries sharing land borders with India. The move introduces clearer guidelines and a definitive timeline for approving investments in critical sectors under the provisions of Press Note 3 (PN3).

The revised policy is expected to simplify procedures, encourage global capital inflows, and accelerate collaborations that strengthen India’s manufacturing ecosystem.

Clear definition of ‘Beneficial Ownership’

A key change in the policy is the introduction of a formal definition and criteria for determining Beneficial Ownership (BO). The definition aligns with the framework used under the Prevention of Money Laundering Rules, 2003, which is widely recognised by global investors.

Under the revised framework:

• The Beneficial Ownership test will be applied at the level of the investor entity.
• Investments where beneficial ownership from land-bordering countries is up to 10 percent and non-controlling will be allowed under the automatic route, subject to sectoral caps and regulatory conditions.
• Investee companies will be required to report relevant ownership details to the Department for Promotion of Industry and Internal Trade (DPIIT).

This change addresses long-standing concerns among global private equity and venture capital funds that previously faced restrictions even when their exposure to land-bordering countries was minimal.

60-day approval window for strategic sectors

To accelerate investment decisions, the Cabinet has also introduced a mandatory 60-day timeline for processing proposals related to investments from land-bordering countries in select manufacturing sectors.

These sectors include:

• Capital goods manufacturing
• Electronic capital goods
• Electronic components
• Polysilicon production
• Ingot and wafer manufacturing

The proposal review process will be coordinated through the Committee of Secretaries (CoS) under the Cabinet Secretary, which may also revise the list of eligible sectors when required.

To safeguard national interest, the policy mandates that majority ownership and control of investee entities must remain with resident Indian citizens or Indian-owned companies.

Background: Press Note 3 restrictions

The changes modify the framework introduced through Press Note 3 (2020) FDI policy amendment in April 2020. The PN3 rule was implemented during the COVID-19 pandemic to prevent opportunistic takeovers of Indian companies.

Under PN3, investments from countries sharing land borders with India—or where the beneficial owner is located in such countries—could proceed only through the government approval route.

While the policy strengthened national security safeguards, industry stakeholders argued that it unintentionally slowed investments from global funds that had limited exposure to such jurisdictions.

Boost expected for startups and deep-tech sectors

The revised policy framework is expected to unlock greater foreign investment from global funds, particularly in emerging sectors such as startups and deep tech.

By introducing clearer ownership thresholds and faster approval timelines, the government aims to:

• Improve ease of doing business
• Encourage technology partnerships and joint ventures
• Expand domestic manufacturing capacity
• Strengthen integration with global supply chains

Industries such as electronics manufacturing, capital equipment production, and solar value chains are likely to benefit from faster investment approvals.

Strengthening India’s manufacturing ambitions

According to the government, the reforms will help India attract global capital while maintaining safeguards over strategic investments. Increased FDI inflows are expected to supplement domestic capital, boost technology transfer, and enhance local value addition.

The policy shift also aligns with the broader goals of the Atmanirbhar Bharat initiative, which seeks to strengthen domestic manufacturing and position India as a competitive global production hub.

With clearer rules and faster approvals, the government hopes the new framework will reinforce India’s status as a preferred destination for global investment and industrial partnerships.