India eases FDI rules – a game-changer for countries sharing land borders with India
Background: the 2020 restrictions
India permits foreign investors to invest in Indian companies under the Foreign Direct Investment (FDI) framework. In 2020, during the COVID-19 pandemic, the Government of India amended the FDI policy through Press Note 3 (2020). Under this amendment, any investment originating from a country sharing a land border with India required prior government approval.
The countries covered under this policy include China, Pakistan, Nepal, Bhutan, Bangladesh, Myanmar and Afghanistan. The requirement also applies where the beneficial owner of the investment is situated in any of these countries, even if the investment is routed through another jurisdiction.
This measure was introduced to safeguard Indian companies from opportunistic or hostile acquisitions during the pandemic, when many businesses were financially vulnerable.
The challenge for global investors
While the policy aimed to protect domestic businesses, Press Note 3 (2020) inadvertently impacted global investment funds, particularly private equity and venture capital funds.
Many global funds have diverse investor bases, including small minority investors from countries sharing a land border with India. Under the earlier framework, even minimal indirect ownership by such investors triggered the requirement for government approval, which led to delays and regulatory uncertainty for many investment transactions.
Siddharth Dhawan, Commercial Head of Corporate Services at Vistra India, explains: "We've seen first-hand how these restrictions created friction for our clients. Global PE and VC funds with diversified investor bases faced significant delays, even when land-border country investors held tiny minority stakes with no control. This wasn't just bureaucratic inconvenience – it was slowing capital deployment and hampering India's growth story."
The March 2026 breakthrough
In March 2026, the Government of India announced a clarification and relaxation of certain provisions under the Press Note 3 framework, aimed at balancing national security considerations with the need to facilitate foreign investment.
1. Limited ownership permitted under the automatic route
Investment may now proceed under the automatic route where an investor from a land-border country holds up to 10% beneficial ownership and does not exercise control over the company. In such cases, the Indian investee company is required to report the investment to the Department for Promotion of Industry and Internal Trade (DPIIT).
2. Beneficial owner definition clarified
The term "beneficial owner" will now follow the definition prescribed under the Prevention of Money Laundering Rules, 2005. Aligning the definition with an existing regulatory framework ensures greater clarity and consistency in interpretation, helping both investors and companies better understand their compliance obligations.
3. Time-bound approval mechanism
For investments requiring government approval in certain manufacturing sectors, the government has introduced a time-bound approval process of 60 days. Illustrative sectors include electronic components, electronic capital goods, capital goods manufacturing, polysilicon manufacturing, and solar wafer or ingot manufacturing.
What's actually changed: before and after
What was required before (Press Note 3 – 2020) | What's changed (2026 Cabinet Decision) | Benefits to business leaders |
|---|---|---|
Any investment from countries sharing a land border with India required mandatory government approval, even if ownership was very small | Investments where beneficial ownership from land-border countries is up to 10% and non-controlling are permitted under the automatic route | Allowing up to 10% non-controlling ownership removes approval delays for many global VC and PE funds, enabling faster funding for Indian companies |
The concept of beneficial owner was not clearly aligned with any standard regulatory definition | The beneficial owner definition now follows the Prevention of Money Laundering Rules, 2005 | Aligning the definition reduces ambiguity and improves compliance certainty for investors and companies |
Even minor indirect ownership (1–2%) from land-border country investors triggered government approval | Non-controlling minority investments (≤10%) are allowed automatically, subject to reporting by the Indian investee company to DPIIT | Simplifies deal structuring for global investment funds with diversified investor bases |
No specific timeline for government approvals for investments requiring clearance | A 60-day approval timeline has been introduced for investments in specified manufacturing sectors | Improves predictability and execution timelines for large manufacturing investments and joint ventures |
Dhawan adds: "This is progress without friction in action. The 10% threshold is a pragmatic solution that recognises commercial reality whilst maintaining oversight. For our clients expanding into India, this means faster market entry, clearer compliance pathways, and the confidence to move forward with strategic investments."
Why this matters for your expansion plans
These refinements provide greater clarity and operational certainty for global investors whilst maintaining oversight of sensitive investments. By allowing limited non-controlling ownership under the automatic route, clarifying the definition of beneficial ownership, and introducing a time-bound approval mechanism for key sectors, the revised framework is expected to:
- Support startups and deep-tech companies seeking international capital
- Improve capital access for Indian businesses from neighbouring markets
- Promote manufacturing investment in strategic sectors
- Strengthen India's integration into global supply chains
- Reduce regulatory uncertainty for cross-border transactions
For business leaders in land-border countries, this represents a genuine opportunity to participate in India's growth trajectory with reduced friction and greater predictability.
How Vistra can help
Expanding into India requires careful planning across legal structuring, regulatory approvals, tax considerations and ongoing compliance. The eased FDI framework creates opportunity, but navigating India's regulatory landscape still demands deep local expertise combined with global perspective.
Contact Vistra today to capitalise on India's eased FDI framework. Our India market entry specialists combine deep regulatory expertise with on-the-ground presence to help you establish and expand operations efficiently. From entity formation and beneficial ownership structuring to ongoing compliance and corporate administration, we ensure your India expansion proceeds smoothly and compliantly.
Contacts
The contents of this article are intended for informational purposes only. The article should not be relied on as legal or other professional advice. Neither Vistra Group Holding S.A. nor any of its group companies, subsidiaries or affiliates accept responsibility for any loss occasioned by actions taken or refrained from as a result of reading or otherwise consuming this article. For details, read our Legal and Regulatory notice at: https://www.vistra.com/notices. Copyright © 2026 by Vistra Group Holdings SA. All Rights Reserved.
Related Insights
View all insights
