FDI clarifications in works to help investors from land border nations
India is preparing further clarifications to its FDI framework for investors from countries sharing a land border with India
The clarifications will guide how investment applications are processed for such investors, following the Union Cabinet's amendment of the rules earlier in 2026
New Delhi has updated procedures requiring investors to submit detailed disclosures on shareholding patterns and ownership structures
The clarifications aim to resolve ambiguity that had affected legitimate foreign investors — including global private equity and venture capital funds — who were inadvertently caught by the blanket 2020 restriction
Sectoral caps, government-route approval requirements, and control safeguards for majority Indian ownership continue to apply
Press Note 3 (2020) and the FEMA (Non-Debt Instruments) Rules, 2019
Press Note 3 of 2020, issued by the Department for Promotion of Industry and Internal Trade (DPIIT) on April 17, 2020, mandated prior government approval for all FDI from entities based in, or with beneficial owners in, countries sharing a land border with India. It was introduced to prevent "opportunistic" takeovers of financially stressed Indian companies during the COVID-19 pandemic. The restriction was implemented through an amendment to Rule 6 of the FEMA (Non-Debt Instruments) Rules, 2019, notified by the Ministry of Finance on April 22, 2020.
Key Details
- FEMA (Non-Debt Instruments) Rules, 2019 are framed under the Foreign Exchange Management Act, 1999 (FEMA), and govern equity/non-debt FDI inflows into India
- Countries sharing a land border with India: China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan
- The rule also captures investors from non-bordering countries if their ultimate beneficial owner is resident in a bordering country
- DPIIT administers Press Notes under India's overall FDI Policy; RBI/Ministry of Finance operationalise them via FEMA rules
The article's reference to "extensive details on shareholding and ownership structures" reflects the beneficial-ownership disclosure regime built into Press Note 3 — the very mechanism now being clarified for genuine, non-controlling investors.
2026 Amendment: The 10% Non-Controlling Ownership Threshold
The Union Cabinet approved an amendment to the FDI framework for land-border countries via Press Note 2 (2026), announced by DPIIT around mid-March 2026, to recalibrate the blanket 2020 restriction that had no defined ownership threshold.
Key Details
- Investors with non-controlling beneficial ownership of up to 10% originating from a land-border country can now invest under the automatic route (no prior government approval needed), subject to sectoral caps
- Controlling investments, or non-controlling stakes exceeding 10%, still require government-route approval
- "Beneficial Owner" is now formally defined in line with the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 — "the natural person who ultimately owns or controls an entity"
- A mandatory 60-day decision timeline was introduced for investment proposals in select manufacturing sectors (capital goods, electronic components, polysilicon/ingot-wafer manufacturing) to support Make in India objectives
- Majority ownership and effective control of the investee company must still rest with resident Indian citizens or Indian-controlled entities
The clarifications the government is now working on operationalise this 2026 amendment — spelling out exactly what documentation and disclosure investors from land-border nations must furnish to qualify for the automatic route or the fast-tracked 60-day government-route review.
Automatic Route vs Government Route in India's FDI Policy
India's FDI Policy classifies sectors and investment types into two broad approval channels: the automatic route, where no prior government/RBI approval is needed, and the government route, where approval from the concerned administrative ministry (via the Foreign Investment Facilitation Portal) is mandatory.
Key Details
- Most sectors in India permit 100% FDI under the automatic route (e.g., manufacturing, e-commerce marketplace model, most services)
- Restricted/regulated sectors (defence beyond a threshold, telecom, media, multi-brand retail, and now land-border-country investments above the ownership threshold) fall under the government route
- The Foreign Investment Facilitation Portal (FIFP), housed under DPIIT, is the single-window clearance mechanism for government-route proposals
- Press Note 3 (2020) effectively moved ALL land-border-country FDI into the government route regardless of sector, prior to the 2026 recalibration
The 2026 clarifications partially restore automatic-route access for small, non-controlling land-border investments while keeping the government-route safeguard for controlling stakes — a middle path between the pre-2020 open regime and the 2020 blanket restriction.
- Press Note 3 (2020) issued: April 17, 2020, by DPIIT
- FEMA (Non-Debt Instruments) Rules amendment notified: April 22, 2020
- Land-border countries covered: China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, Afghanistan
- 2026 amendment (Press Note 2, 2026): automatic route permitted for non-controlling beneficial ownership up to 10%
- Fast-track government-route decision timeline introduced: 60 days, for select manufacturing sectors
- Beneficial-owner definition aligned with: Prevention of Money-Laundering (Maintenance of Records) Rules, 2005
- Reported pending FDI proposals from land-border countries at one point: around Rs 1 lakh crore, roughly half cleared [Unverified — figure from press reports, exact date/status not confirmed in current article]