New Delhi: The Centre has fine-tuned its foreign investment screening framework, with the Union Cabinet on Tuesday approving key amendments to the FDI policy governing investments from countries that share a land border with India.
The move introduces clearer rules around “beneficial ownership” and a defined 60-day approval timeline for select manufacturing sectors, in what officials say is an attempt to strike a balance between safeguarding national interests and keeping India attractive to global capital.
The countries that share land borders with India include China, Pakistan, Bangladesh, Nepal, Afghanistan, Bhutan and Myanmar.
The policy revision comes amid improving foreign investment momentum. According to the Department for Promotion of Industry and Internal Trade (DPIIT), India received about $81 billion in FDI inflows in FY2024-25, a 14% increase from the previous year and the highest level in three years. Strong investor interest in sectors such as electronics, digital infrastructure and renewable energy has reinforced India’s position among the world’s leading investment destinations.
Tuesday's Cabinet decision effectively recalibrates the framework introduced through Press Note 3 of 2020, which tightened investment rules during the early months of the Covid-19 pandemic. Earlier, the rule applied only to entities in Bangladesh and Pakistan. However, after tensions with China escalated following the Galwan Valley clash, the 2020 rule was expanded to include other countries sharing land borders with India, with China being the largest investor among them.
At the time, the government required all investments from countries sharing land borders with India — or investments where the ultimate beneficial owner was located in such countries — to undergo mandatory government approval process. The measure was aimed at preventing opportunistic acquisitions of stressed Indian companies during the pandemic-induced economic slowdown.
However, over time, industry stakeholders flagged that the broad scope of the rule was also affecting investments by global private equity and venture capital funds, many of which have diversified investor bases that may include minority participation from such jurisdictions. This often slowed down transactions even when the investment did not involve strategic control.
The revised policy seeks to address this issue by formally introducing a definition of ‘Beneficial Owner’ aligned with the criteria used under the Prevention of Money Laundering Rules, 2005. The test for beneficial ownership will now be applied at the level of the investor entity, providing clearer regulatory interpretation for foreign funds and institutional investors.
Significantly, the amendment allows investments where entities from land-bordering countries hold up to 10% non-controlling beneficial ownership to proceed through the automatic route, subject to sectoral caps and disclosure requirements. Officials believe this will remove a major bottleneck that had complicated investments routed through global funds and multinational investment platforms.
Time-bound Approval
The government has also introduced a time-bound approval mechanism for investments involving land-bordering country investors in certain priority manufacturing sectors. Proposals in areas such as electronic components, electronic capital goods, capital goods manufacturing, and upstream solar manufacturing segments including polysilicon and ingot-wafer production will now be processed within 60 days.
This fast-track clearance mechanism is intended to encourage technology partnerships and joint ventures, particularly in sectors where India is seeking to deepen domestic manufacturing capabilities. Industry experts say faster approvals could help companies enter collaborations more quickly, access advanced technology and integrate Indian production networks with global supply chains.
Even as the government eases some restrictions, the policy maintains safeguards to ensure domestic control over sensitive sectors. Under the revised framework, the majority shareholding and control of investee companies in these cases must remain with resident Indian citizens or Indian entities owned and controlled by them.
The changes are closely aligned with India’s broader push to strengthen domestic manufacturing under initiatives such as Make in India and production-linked incentive schemes. Electronics, renewable energy components and capital goods manufacturing have emerged as strategic sectors where foreign technology and capital can accelerate local value creation.
Global supply chain shifts are also playing to India’s advantage. As multinational companies diversify production bases beyond traditional manufacturing hubs, India is increasingly positioning itself as a competitive alternative with policy support, a large domestic market and improving industrial infrastructure.
Officials believe the revised guidelines will bring greater clarity for investors while preserving the government’s ability to scrutinize investments that could pose strategic risks. By easing restrictions on minority investments and introducing faster approval timelines, the policy is expected to improve deal certainty and unlock greater flows of foreign capital into emerging sectors such as deep technology and advanced manufacturing.
In effect, the move signals a more calibrated approach to investment regulation — one that retains oversight where necessary but reduces friction for legitimate global investors seeking to participate in India’s growth story.