India’s Finance Ministry on Saturday formally notified changes to the Foreign Exchange Management Act that allow overseas companies with up to 10 percent Chinese or Hong Kong shareholding to invest in India through the automatic route, removing the need for prior government approval. The amended rules, effective from May 1, mark the most concrete step yet in unwinding the blanket restrictions India imposed in April 2020 to guard against opportunistic takeovers during the pandemic.
Under the original Press Note 3, introduced in 2020, any foreign company with even a single share held by an entity from a country sharing a land border with India including China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan needed mandatory government approval before investing in any Indian sector. The Union Cabinet approved amendments to this framework on March 10, 2026, adopting a more targeted approach that ties restrictions to beneficial ownership rather than any trace of neighboring-country capital.
The Department for Promotion of Industry and Internal Trade (DPIIT) subsequently issued Press Note 2 (2026 Series) on March 15, codifying the changes in the FDI policy. Saturday’s FEMA notification by the Department of Economic Affairs completed the regulatory chain needed for the rules to take legal effect.
Under the new framework, the beneficial ownership test is applied at the level of the investor entity and aligned with criteria under India’s Prevention of Money Laundering Rules, which define controlling ownership as more than 10 percent of shares, capital, or profits. Foreign firms falling below that threshold can now invest without seeking approval, subject to sectoral caps and reporting requirements to the DPIIT.
The relaxation does not extend to entities directly registered in China, Hong Kong, or other land-border nations those still require government clearance regardless of ownership levels. Multilateral banks and institutions of which India is a member are exempt from country-of-origin classification.
The government has also mandated that FDI proposals from land-border countries in manufacturing sectors such as capital goods, electronic components, polysilicon, and ingot-wafer production be processed within 60 days. In all such cases, majority ownership and control of the Indian investee company must remain with Indian residents.
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