The Union Cabinet on March 10, approved amendments to India’s foreign direct investment (FDI) policy that regulates investments from countries sharing a land border with India.
The decision was taken during a Cabinet meeting chaired by Prime Minister Narendra Modi.
The revised policy framework is designed to streamline approvals, clarify regulatory definitions, and encourage investments in key manufacturing sectors that are crucial for India’s industrial growth and technological advancement.
Officials stated that the amendments introduce clearer rules for determining “beneficial ownership” and establish faster timelines for processing investment proposals in priority sectors such as electronic components, capital goods and solar manufacturing.
Clear definition of beneficial ownership introduced
A key feature of the revised policy is the formal definition of “Beneficial Owner,” which has now been aligned with the provisions under the Prevention of Money Laundering Rules, 2005.
Under the new framework, the beneficial ownership test will be applied at the level of the investor entity.
Investments where entities from countries sharing land borders with India hold non-controlling beneficial ownership of up to 10 percent will now be permitted through the automatic route. However, such investments must still comply with sectoral caps and other regulatory requirements.
These investments will also require disclosure and reporting to the Department for Promotion of Industry and Internal Trade (DPIIT), ensuring transparency and regulatory oversight.
Faster approvals for key manufacturing sectors
Another important reform introduced through the Cabinet decision is a defined timeline for processing investment proposals from neighbouring countries in selected manufacturing sectors.
The government has set a 60-day timeline for approvals in specific industries considered critical for India’s industrial ecosystem.
These sectors include capital goods, electronic capital goods, electronic components, polysilicon manufacturing, and ingot-wafer production.
The government expects that faster approvals will allow companies to form joint ventures more efficiently, gain access to advanced technologies and integrate with global manufacturing supply chains.
Safeguards on ownership and control
Despite easing certain procedural aspects, the policy maintains strict safeguards regarding ownership and control.
The revised guidelines clearly stipulate that majority ownership and control of the investee company must remain with resident Indian citizens or Indian-owned entities.
This provision is intended to ensure that while foreign investment is encouraged, strategic control over domestic companies remains within India.
Restrictions introduced during COVID-19
The current regulatory framework governing investments from neighbouring countries was introduced through Press Note 3 (2020) during the COVID-19 pandemic.
At that time, the government mandated that any investment from countries sharing a land border with India must receive prior government approval.
The rule was implemented to prevent opportunistic takeovers of Indian companies at a time when global economic uncertainty and falling valuations could make domestic firms vulnerable to acquisition.
However, over time policymakers observed that the rule also affected investments from global private equity and venture capital funds where investors from neighbouring countries might hold only minor and non-controlling stakes.
Boost to ease of doing business
According to the government, the revised policy is intended to improve the ease of doing business and boost foreign investment inflows while maintaining necessary safeguards.
Officials said the reforms would encourage greater investment in advanced manufacturing sectors and facilitate technology transfer to Indian companies.
The government also expects the move to strengthen domestic value addition, support industrial growth and enable Indian firms to integrate more effectively with global supply chains.
Supporting the Atmanirbhar Bharat Vision
The policy changes are also aligned with the government’s broader vision of Atmanirbhar Bharat, which seeks to enhance India’s manufacturing capabilities and reduce dependence on imports.
By encouraging investments in high-technology manufacturing sectors such as electronics and solar supply chains, the government aims to strengthen domestic industrial capacity and build resilient supply networks.
Officials said the reforms are expected to enhance India’s competitiveness as a global investment destination while ensuring that national economic and strategic interests remain protected.
