The Cabinet had, in March, approved changes to the regulatory framework for foreign investments, setting the stage for overseas firms with such small Chinese/Hong Kong ownership to invest in India without prior government approval, subject to sector-specific rules.
Subsequently, the Department for Promotion of Industry and Internal Trade (DPIIT) notified relevant changes in the press note 3 of the foreign direct investment (FDI) policy. Appropriate tweaks to the FEMA rules by the Department of Economic Affairs (DEA) are now notified, clearing hurdles for such FDI inflows, experts said.
The Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026, will come into effect immediately, the DEA said in the notification.
The move follows the government’s bid to shore up FDI inflows without undermining national security interests, amid the West Asia war that has impacted its capital flows.
Prior government clearance for FDI will now has to be sought only by those foreign entities with Chinese/Hong Kong beneficial ownerships, (holding beyond 10%).
To be sure, the amended FEMA rules won’t apply to entities registered in China or Hong Kong or other countries sharing land borders with India.Mayank Arora, director (Regulatory) at Nangia Global, said, “More than just operational clarity, the notification is a subtle nudge towards thawing of Sino-Indo relations.”
Companies in certain sectors with investment from China prior to the 2020 rule change can explore the option of approaching the DPIIT for further infusion of funds under the approval route, Arora added.
India had, in April 2020, imposed curbs on FDI from nations with which it shares land borders in the wake of a Covid-induced crash in corporate valuations. This was aimed at curbing opportunistic takeovers of Indian companies by investors from these countries, or by those that were beneficially owned by persons or entities situated in such countries.
The Galwan clash in June 2020, for which India had blamed China, further hardened New Delhi’s stance on FDI from bordering nations.
Beneficial ownership has been traditionally linked to individual or natural person controlling the entity, said Arora of Nangia Global. But the latest DPIIT press note and Saturday’s amendment rules “deem any intervening entity based out of any land border sharing country as a beneficial owner, irrespective of the citizenship of the ultimate natural person behind the chain of entities,” he said.