The Department for Promotion of Industry and Internal Trade (DPIIT) issued a notification regarding changes in the Foreign Direct Investment (FDI) policy, saying that foreign companies with up to 10 percent Chinese stake have been allowed to invest in India through the automatic route. According to the notification, such investments will be subject to the FDI limits and conditions of the respective sectors.
However, this exemption will not apply to companies registered in China or Hong Kong or companies from other countries sharing land cross border with India. Earlier, foreign companies had to obtain mandatory approval from the government to invest in any sector in India if any shareholder from these border countries owned even a single share. But now this restriction will apply only to beneficial ownership.
What’s in the new notification?
According to the notification, beneficial ownership of an investment unit in India would mean the actual owner of the investment unit, which is registered or established in a country that does not share land border with India. The definition of beneficial ownership will be in accordance with the provisions of the Prevention of Money Laundering Act (PMLA), 2002. According to PMLA rules, controlling ownership means holding more than 10 percent of the shares, capital or profits of a company.
Ban was imposed during Covid
This change in FDI related rules was decided by the Union Cabinet last week. The government had issued Press Note-3 (2020) on April 17, 2020 amending the FDI policy to prevent opportunistic acquisitions of Indian companies during the Covid-19 pandemic. Under Press Note-3, it was made mandatory for companies or such investors from countries sharing land borders with India to seek approval from the government before investing in India.
Which countries were affected?
Countries sharing land borders with India include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan. This rule had affected many investors including global private equity (PE) and venture capital (VC) funds. Especially the impact of this amendment was seen more on foreign companies with minority stake of investors from China or Hong Kong.
now changed
According to the fresh notification, if citizens or units of these countries have direct or indirect stake in any investor unit and it does not require government approval, then such investments will have to be reported as per the standard procedure prescribed by DPIIT. According to government data, China’s share in total FDI equity inflows into India during April 2000 to December 2025 has been only 0.32 percent.