FDI push: ₹4,896 cr across 29 projects; India allows 10% Chinese stake
A relaxation to India's foreign direct investment (FDI) rules for entities with a minority Chinese shareholding has drawn 29 investment proposals worth ₹4,896 crore, routed through the automatic approval route
The relaxed norm allows foreign entities with up to 10% non-controlling shareholding by persons/entities based in a country sharing a land border with India to invest in India via the automatic route, rather than requiring mandatory prior government approval
The proposals span sectors including information technology, artificial intelligence, manufacturing, pharmaceuticals, data centres and transport services, from investor jurisdictions such as Mauritius, the US, Korea, Japan, Singapore, Luxembourg and the Cayman Islands
The change was cleared by the Union Cabinet in March 2026 and notified by the Department for Promotion of Industry and Internal Trade (DPIIT), with the FEMA rule amendment taking effect from 1 May 2026
Press Note 3 (2020) and the Land-Border FDI Approval Requirement
Press Note 3 of 2020, issued by the DPIIT on 17 April 2020, mandated prior government approval for any FDI — direct or through change in beneficial ownership — from entities of a country sharing a land border with India, or where the beneficial owner is situated in or is a citizen of such a country. It was introduced to prevent opportunistic takeovers of Indian companies during the COVID-19 pandemic-induced valuation slump.
Key Details
- Issued 17 April 2020 under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, framed under FEMA, 1999
- Covers investment from China (including Hong Kong and Macau), Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan — the "Land Bordering Countries" (LBCs)
- Applied irrespective of sector; also covered indirect/beneficial ownership changes in existing Indian FDI recipients
- Widely criticised by industry for slowing down even minority, passive foreign institutional investment where an LBC-based entity held a small indirect stake (e.g., through global funds with Chinese LPs)
The current relaxation directly modifies Press Note 3's blanket approval requirement, carving out an automatic-route exception for genuinely minority (sub-10%), non-controlling LBC-linked shareholding.
FDI Automatic Route vs Government Route
Under India's FDI policy, the "automatic route" allows investment without prior approval from the government or RBI, whereas the "government route" requires clearance from the concerned administrative ministry/department before the investment can be made. Over 90% of India's FDI inflows occur via the automatic route.
Key Details
- FDI is governed by FEMA, 1999, primarily through the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019
- DPIIT (Ministry of Commerce and Industry) issues Press Notes/Consolidated FDI Policy circulars; RBI notifies the corresponding FEMA rule amendments
- Government-route sectors include defence (beyond 74%), multi-brand retail (subject to conditions), print media, and satellite communications, among others; LBC-origin investment (under Press Note 3) was treated as government-route regardless of sector
By moving sub-10% LBC-linked, non-controlling investment back to the automatic route, the notification narrows the scope of Press Note 3's government-route requirement rather than repealing it — investments with 10% or more indirect LBC shareholding, or any controlling stake, still require government approval.
Press Note 2 of 2026 and the FEMA Amendment Mechanism
Policy changes to India's FDI regime are implemented through a two-step process: DPIIT issues a "Press Note" under the Consolidated FDI Policy to signal the change, followed by the Finance Ministry notifying an amendment to the FEMA Non-Debt Instruments Rules to give it legal effect. This case followed that same sequence.
Key Details
- Union Cabinet cleared the change in March 2026
- DPIIT subsequently issued Press Note 2 of the 2026 series to notify the relaxed norm
- The Finance Ministry's FEMA rule amendment came into effect from 1 May 2026, along with new reporting requirements for investments carrying such minority LBC-linked shareholding
- This mirrors the same legal architecture used to introduce Press Note 3 in 2020 (Cabinet decision → DPIIT Press Note → FEMA rule notification)
The 29 proposals worth ₹4,896 crore represent the first tranche of investment activated by this three-stage policy relaxation, illustrating how FDI policy changes move from Cabinet approval to an operative legal rule.
- Value of FDI proposals under the relaxed norm: ₹4,896 crore (approximately ₹4,895.65 crore) across 29 projects
- Threshold for automatic route eligibility: up to 10% non-controlling shareholding by land-border-country-based entities
- Original restriction: Press Note 3 (2020), issued 17 April 2020
- Cabinet approval for relaxation: March 2026; DPIIT notification: Press Note 2 of 2026 series
- FEMA rule amendment effective date: 1 May 2026
- Sectors receiving proposals: IT, AI, manufacturing, pharmaceuticals, data centres, transport services
- Source investor jurisdictions: Mauritius, US, Korea, Japan, Singapore, Luxembourg, Cayman Islands