India has relaxed some foreign investment rules for countries that share a land border with it, a move aimed at making it easier for businesses to raise funds while keeping safeguards on who controls Indian companies.
The decision was approved by the Union Cabinet and the changes are intended to boost foreign investment, help startups access global funding and support manufacturing growth in India.
Here is what the new policy means in simple terms.
WHAT HAS ACTUALLY CHANGED?
Until now, any investment from countries that share a land border with India required government approval. This applied even if the investment was very small.
The rule was introduced in 2020 to prevent opportunistic takeovers of Indian companies when markets had weakened during the pandemic.
Under the revised policy, investors from neighbouring countries can now hold up to 10% beneficial ownership in an Indian company without needing government approval, provided the investment does not give them control over the company.
Such investments will be allowed through the automatic route, meaning companies do not have to wait for clearance before accepting funds. However, the policy still ensures that majority ownership and control remain with Indian citizens or Indian-owned entities.
The government has also clarified the definition of “beneficial owner”, using the criteria followed under the Prevention of Money Laundering Rules. This helps authorities identify who ultimately owns or controls the investment.
WHY DID INDIA CHANGE THE RULES?
While the earlier restrictions were introduced for security reasons, they also slowed down investment flows over time.
Many global venture capital and private equity funds have investors from countries that share a land border with India. Because of this, even small investments in Indian startups often required government approval, which delayed funding.
Industry groups had argued that these rules were making it harder for Indian startups and technology companies to raise money. By allowing small non-controlling investments through the automatic route, the government hopes to unlock funding from global investment funds while maintaining safeguards.
HOW WILL THIS HELP COMPANIES?
The government believes the new rules will make it easier for Indian companies to attract foreign investment and form technology partnerships.
The policy is expected to particularly support manufacturing sectors such as electronic components, capital goods and solar manufacturing. These industries often rely on foreign technology and partnerships to expand production.
To speed up investments in these areas, the government has also introduced a 60-day timeline for approvals in certain manufacturing sectors that still require government clearance. The aim is to help companies form joint ventures more quickly and integrate into global supply chains.
WHAT DOES THIS MEAN FOR INDIA?
Foreign direct investment brings long-term capital, technology and expertise into the country. By easing some of the restrictions introduced in 2020, the government hopes to encourage more investment while ensuring that Indian companies remain under Indian control.
Officials say the changes could help startups raise funds more easily, strengthen domestic manufacturing and improve India’s position in global supply chains. At the same time, safeguards remain in place to prevent foreign investors from gaining control of strategic Indian businesses.
