Review of FDI Policy on Investments from Countries Sharing Land Border with India

The Government of India has introduced significant amendments to the Foreign Direct Investment (FDI) Policy concerning investments from countries that share a land border with India. These changes, outlined in Press Note No. 2 (2026 Series) issued by the Department for Promotion of Industry and Internal Trade (DPIIT), aim to ensure greater scrutiny and regulation of foreign investments from neighboring countries. The revised policy is set to take effect from the date of the Foreign Exchange Management Act (FEMA) notification.

Key Highlights of the Revised FDI Policy

Government Route for Investments from Border-Sharing Countries

Under the amended policy, any entity or citizen from a country sharing a land border with India, or where the beneficial owner of an investment into India is a citizen of such a country, can only invest in India through the Government route. This means that such investments will require prior approval from the Indian Government.

Additionally, citizens or entities from Pakistan can invest in India only under the Government route, and only in sectors/activities other than defense, space, atomic energy, and other sectors prohibited for foreign investment.

Government Approval for Change in Beneficial Ownership

The policy mandates that any transfer of ownership of existing or future FDI in an Indian entity, resulting in the beneficial ownership falling under the restrictions mentioned above, will require prior Government approval. This ensures that any subsequent changes in ownership are closely monitored to prevent unauthorized control by entities from border-sharing countries.

Definition of Beneficial Ownership

The term “beneficial owner” is defined in accordance with Section 2(1)(fa) of the Prevention of Money-laundering Act, 2002, and Rule 9(3) of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005. The beneficial ownership of an investment will be considered to be vested in a country sharing a land border with India if:

Citizens or entities from such countries hold rights or entitlements exceeding the thresholds prescribed under Rule 9(3) of the PML Rules.
They exercise control or ultimate effective control over the investor entity or the investee entity.

Reporting Requirements

Investments into India from entities with direct or indirect ownership by citizens or entities of border-sharing countries, which do not require prior Government approval, will still be subject to reporting requirements. These reports must follow the Standard Operating Procedure (SOP) laid down by DPIIT. This is in addition to compliance with sectoral caps, entry routes, and other conditions.

Objective of the Policy Revision

The revised FDI policy aims to safeguard national security and prevent opportunistic takeovers or acquisitions of Indian companies by entities from countries sharing land borders with India. This move is particularly significant in the context of geopolitical tensions and the need to protect India’s strategic interests.

Implementation Timeline

The amendments to the FDI policy will come into effect from the date of the FEMA notification. Relevant changes will be incorporated into the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, and the FIRMS portal by the Department of Economic Affairs and the Reserve Bank of India.

Conclusion

The Government of India’s decision to review and amend the FDI policy reflects its commitment to ensuring that foreign investments align with national security and economic interests. By introducing stricter regulations and monitoring mechanisms for investments from countries sharing land borders, the policy seeks to create a more secure and transparent investment environment. Businesses and investors are advised to stay updated on the latest guidelines and comply with the reporting requirements to ensure smooth operations in India.

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Source: DPIIT

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