Authors: Mr. Aparajit Bhattacharya (Partner) and Mr. Harvinder Singh (Partner)
A significant policy development announced by the Government of India following the Union Cabinet meeting held on March 10, 2026. The Cabinet has approved significant relaxations to the investment restrictions applicable to investors from countries sharing land borders with India, namely Pakistan, Peoples Republic of China (including Tibet, Hong Kong and Macau), Nepal, Bhutan, Myanmar, Bangladesh, Afghanistan (“LBCs”), under India’s Foreign Direct Investment (“FDI”) policy. These changes relax the investment framework introduced under Press Note 3 of 2020 (“PN3”), issued in April 2020 by the Department for Promotion of Industry and Internal Trade (“DPIIT”), which required all direct as well as indirect investments from LBC investors to be routed through the Government approval route. The amendments are expected to significantly improve deal timelines, transaction structuring flexibility and investor certainty for investments involving entities with limited ownership links to LBCs. The key amendments and their impact are summarised below.
Key Amendments:
1. Automatic Route for Investments with Non-Controlling LBC Beneficial Ownership (up to 10%)
- The amendment provides long-awaited clarity on the beneficial ownership (“BO”) threshold for investors from LBCs. Under the earlier PN3 framework, all investments with any LBC ownership were subject to the Government approval route, regardless of the extent of such ownership. However, in practice, majority of the banks had adopted a pragmatic interpretation that beneficial ownership should be assessed based on individuals holding more than 10% ownership or voting rights, although this position had not been formally clarified by the Government.
- The FDI policy will now align the definition and determination of BO with the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. Consequently, investors with non-controlling BO up to 10% from LBCs may invest under the automatic route, subject to sectoral caps, entry routes and reporting requirements to DPIIT. The BO determination will occur at the investor entity level.
2. Expedited 60-day clearance mechanism for LBC investments in specific sectors
- The Government has introduced an expedited approval mechanism under which investment proposals from LBC investors in certain strategic manufacturing sectors will be processed and decided within a timeline of up to 60 days. The expedited mechanism currently applies to investments in the manufacturing of capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer (including solar cells). In such cases, majority shareholding and control of the Indian investee company must remain with resident Indian citizens or Indian-owned and controlled entities.
- The Government has also indicated that a Committee of Secretaries may expand or revise the above list of eligible sectors.
Implications for Cross-Border M&A and Strategic Collaboration:
The amendments provide greater regulatory clarity and transactional certainty for cross-border investments involving entities with limited ownership links to LBCs. By permitting investments with non-controlling beneficial ownership of up to 10% under the automatic route, the changes may facilitate minority investments, follow-on funding rounds and participation by global investment funds that may have incidental LBC investors. In addition, the introduction of an expedited 60-day approval mechanism in certain strategic manufacturing sectors could accelerate joint ventures, technology collaborations and strategic investments in areas such as electronics and semiconductor supply chains. At the same time, investors and acquirers will continue to need to carefully assess beneficial ownership structures and control thresholds when structuring M&A transactions to ensure compliance with the revised FDI framework.
While the official Press Note is still awaited, for your ease of reference, we are attaching the press release issued by the Press Information Bureau.
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Disclaimer: This update is general in nature and is not intended to be a substitute for specific legal advice. Please contact the author(s) for specific legal advice in this regard.
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