Cabinet Clears Key Amendments to FDI Policy for Investments from Land-Border Countries

The Union Cabinet of India, chaired by Narendra Modi, has approved significant changes to India’s foreign direct investment (FDI) policy governing investments from countries that share land borders with India. The revised policy aims to introduce greater clarity, streamline approval processes, and attract investment into critical manufacturing and technology sectors while maintaining safeguards for national economic security.

The decision introduces targeted amendments to the framework established under Press Note 3 (2020), which had tightened scrutiny of investments from neighbouring countries during the COVID-19 pandemic.

Background to the Policy Change

In April 2020, the Government of India amended its FDI policy through Press Note 3 to prevent opportunistic takeovers or acquisitions of Indian companies during the economic disruption caused by the pandemic. The policy mandated that any investment from an entity based in a country sharing a land border with India—or where the beneficial owner of the investment belonged to such a country—would require approval through the government route.

This rule applied not only to new investments but also to transfers of ownership in existing FDI, if the beneficial ownership shifted to entities or individuals located in such jurisdictions. While the measure strengthened investment scrutiny, it also had unintended consequences by affecting capital flows from global private equity and venture capital funds where investors from neighbouring countries might hold small, non-controlling stakes.

Defining Beneficial Ownership

One of the major changes approved by the Cabinet is the formal incorporation of a definition and criteria for determining “Beneficial Ownership” (BO) in the FDI framework. The revised policy adopts definitions widely used in financial regulations under the **Prevention of Money Laundering Rules, 2005.

Under the new guidelines, the beneficial ownership test will be applied at the level of the investor entity. Importantly, investments where the beneficial ownership from land-border countries is non-controlling and limited to up to 10 percent will now be allowed through the automatic route, provided they comply with sectoral limits and other applicable conditions.

However, such investments will still require mandatory reporting to the Department for Promotion of Industry and Internal Trade by the investee company to ensure transparency and regulatory oversight.

Faster Approvals for Strategic Manufacturing Sectors

Another key element of the revised policy is the introduction of a definitive 60-day timeline for processing investment proposals from land-border countries in specific sectors considered vital for India’s manufacturing ecosystem.

The accelerated approval mechanism will apply to investments in areas such as electronic components, electronic capital goods, capital goods manufacturing, and the production of polysilicon and ingot-wafer, which are crucial for the electronics and solar manufacturing supply chains.

According to the government, the proposals in these sectors will be processed and decided within 60 days, enabling companies to move more quickly into joint ventures, technology partnerships, and manufacturing collaborations.

The list of sectors eligible for expedited approval may also be revised from time to time by the Committee of Secretaries (CoS) under the Cabinet Secretary.

Safeguards on Ownership and Control

Despite easing certain restrictions, the policy maintains safeguards to ensure domestic control in strategic sectors. Under the revised rules, majority shareholding and control of the investee entity must remain with resident Indian citizens or Indian-owned and controlled entities at all times.

This provision is intended to strike a balance between attracting foreign capital and technology while preserving strategic autonomy and domestic decision-making authority.

Boost for Startups, Deep Tech and Manufacturing

The government expects the revised policy to unlock greater investment flows from global funds, particularly those that have diversified investor bases that may include small holdings from neighbouring countries.

Startups and deep-technology firms, which often rely heavily on venture capital and private equity funding, are expected to benefit significantly from the relaxation of restrictions on minor, non-controlling shareholding.

The policy also aligns with the government’s broader agenda of improving the ease of doing business in India, promoting advanced manufacturing, and strengthening India’s position in global supply chains.

By facilitating quicker decisions and reducing regulatory uncertainty, the government believes the changes will encourage companies to enter technology collaborations, establish joint ventures, and expand manufacturing operations within India.

Supporting India’s Manufacturing Ambitions

The amendments are also expected to support India’s push to become a global manufacturing hub in sectors such as electronics, renewable energy components, and industrial machinery.

Higher FDI inflows could help supplement domestic capital, enable access to cutting-edge technologies, and expand domestic production capabilities. The government believes these changes will further advance the goals of the Atmanirbhar Bharat initiative, while strengthening India’s competitiveness as a preferred investment destination.

A Balanced Approach to Investment Security and Growth

The Cabinet’s decision reflects a calibrated approach to foreign investment policy—one that maintains safeguards introduced during a period of global economic uncertainty while adapting to evolving investment realities.

By clarifying beneficial ownership rules and introducing faster approval timelines in critical sectors, the government hopes to facilitate legitimate investment flows while protecting strategic economic interests.

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References

1. Press Information Bureau – Cabinet approval on amendments to FDI policy for land-border countries (March 10, 2026).
2. Press Note 3 (2020) issued by the Department for Promotion of Industry and Internal Trade.
3. Prevention of Money Laundering Rules, 2005.

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