India Eases FDI Rules for Investments from Countries Sharing Land Borders, Including China

Union Cabinet, chaired by Prime Minister Narendra Modi, has approved significant changes to the Foreign Direct Investment (FDI) policy concerning investments from countries that share a land border with India (commonly referred to as Land Bordering Countries or LBCs, which includes China).

The amendments introduce two major relaxations aimed at improving ease of doing business, attracting global capital, and accelerating technology transfer and manufacturing growth in India:

1. Clear definition and threshold for Beneficial Ownership
   A new definition and criteria for determining “Beneficial Ownership” (BO) have been incorporated. Investments from LBC entities where the beneficial ownership is non-controlling and up to 10% will now be permitted under the automatic route (subject to sectoral caps and conditions), instead of requiring prior government approval. Such investments will still need to be reported to the Department for Promotion of Industry and Internal Trade (DPIIT).
2. Fast-track approval for specific manufacturing sectors
   Proposals for investments from LBC entities in the following manufacturing activities will now be processed and decided within 60 days:

• Electronic components
• Capital goods
• Electronic capital goods
• Polysilicon and ingot/wafer manufacturing In these cases, the majority shareholding and control of the Indian investee company must remain with resident Indian citizens and/or Indian entities owned and controlled by resident Indians at all times.

The existing Press Note 3 (2020) had imposed mandatory government approval for all investments from LBCs (direct or indirect) following concerns over opportunistic takeovers during the COVID-19 period. The new changes are intended to strike a balance between national security and the need to attract foreign capital, particularly from global funds, private equity, and venture capital into non-strategic and non-controlling stakes.

The government expects the revised guidelines to bring greater clarity, unlock higher FDI inflows, facilitate collaborations in high-technology and manufacturing sectors, enable better integration into global supply chains, and support the Atmanirbhar Bharat agenda.

The amendments will be notified through a Press Note by the Department for Promotion of Industry and Internal Trade in the coming days.