25 Mar 2026
The Government of India has, on 15 March 2026, amended the Consolidated FDI Policy Circular of 2020 dated 15 October 2020 through Press Note 2 (2026) (PN-2), easing restrictions stemming from Press Note 3 (2020) dated 17 April 2020 (PN-3) and providing long-awaited clarity on key interpretational issues. PN-3 restricted foreign investments from countries sharing a land border with India (LBC).
Partner: Vaibhav Kothari, Senior Associate: Arushi Chandak
In April 2020, PN-3 amended India’s foreign direct investment policy (FDI) by requiring government approval for investments in Indian companies by citizens of LBCs or entities from LBCs (LBC Investor), or investors whose beneficial owner is an LBC Investor (BO LBC Investor). PN-3 also imposed similar restrictions on the transfer of any ownership of an Indian entity to an LBC Investor or a BO LBC Investor. Notably, however, PN-3 did not provide a definition or any clarity on what would constitute ‘beneficial ownership’, resulting in significant interpretational uncertainty. In practice, this led to inconsistent approaches by authorised dealer banks in assessing the approval requirement under PN-3, with no clarity on outcomes.
With the introduction of the PN-3 framework, approvals for FDI from an LBC Investor or BO LBC Investor took an inexplicably long time to come through, if at all. The Government had then decided to process applications for select strategic sectors, and with conditionalities, on a case-by-case basis. This reflected the national security perception and economic imperatives of the time.
The Government has now approved changes to the guidelines for investments from LBCs, with the stated aim of unlocking greater FDI inflows from global funds for startups and deep tech, and advancing the agenda of ease of doing business.
The key changes brought in by PN-2 are:
PN-2 came in the background of the press release by the Union Cabinet on 10 March 2026 (Press Release). The Press Release also provides for an expedited clearance for investment from LBCs in specified sectors. It states that the proposals for LBC investments in specified sectors of manufacturing in capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer will be processed and decided within 60 days. In such cases, the majority shareholding and control of the investee entity will need to be with resident Indian citizens and/or resident Indian entities owned and controlled by resident Indian citizens, at all times.
This can be seen as useful guidance on general timelines and sectors in which investors may expect approvals to come through with more certainty than before.
The amendments brought in by PN-2 will take effect from the date of notification under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules). This is yet to be notified.
The changes introduced through PN-2, read with the accompanying Press Release, reflect a clear and deliberate shift in India’s foreign investment policy towards a more structured and pragmatic approach to investments from LBCs, while addressing longstanding interpretational gaps. In particular, the clarification around the determination of beneficial ownership should materially reduce the need to rely on informal understandings or interpretational guidance from authorised dealer banks, which have historically applied varying thresholds and approaches. This, in turn, is expected to enhance deal certainty and mitigate PN-3 level risks typically associated with inbound investment transactions and multi-layered fund structures involving LBC touchpoints.
That said, the corresponding amendments to the NDI Rules will need to be closely scrutinised.
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