The decision to allow foreign companies, which have up to 10 percent Chinese shareholding, to invest in India under the ‘automatic route’ has come into effect from May 1. The Finance Ministry has also notified these changes under FEMA. In March, the Union Cabinet had approved the amendments made to Press Note (PN) 3 of 2020 of DPIIT.
According to these amendments, foreign companies having Chinese/Hong Kong shareholding up to 10 per cent will be eligible to invest in India in sectors where FDI is permitted under the ‘automatic route’, provided they satisfy the relevant sector conditions. However, these relaxed FDI rules will not be applicable to those entities which are registered in China, Hong Kong or other countries sharing land borders with India.
Earlier, foreign companies with shareholders from these land border countries had to obtain mandatory approval to invest in any sector in India, even if they held only a single share. Countries sharing land borders with India include China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. Now, these restrictions will apply only to ‘beneficial owners’.
Press Note 2 notified
Following Cabinet approval, the Department for Promotion of Industry and Internal Trade (DPIIT) notified it in March through a Press Note 2 (2026 series). DPIIT issues notifications related to FDI through press notes. According to a notification from the Department of Economic Affairs (DEA), the term “beneficial owner” shall have the same meaning as assigned to it in clause (fa) of sub-section (1) of section 2 of the Prevention of Money-Laundering Act, 2002 (15 of 2003) and shall be determined in accordance with the criteria prescribed under the provisions of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. According to a rule of PMLA, “controlling ownership interest” means ownership or control over more than ten percent of the shares, capital or profits of the company.
Why was there a ban during Covid?
The subject of this DEA notification is “Amendment to the ‘Foreign Exchange Management (Non-Debt Instruments) Rules, 2019’ consequent to Press Note No. 2 (2026 Series) of DPIIT”. To curb opportunistic acquisitions/takeovers of Indian companies due to the COVID-19 pandemic, the government amended the FDI policy vide Press Note 3 (2020) on April 17, 2020. The notification also stated that any multilateral bank or fund of which India is a member shall not be treated as an entity of any particular country; Nor will any country be considered the ‘beneficial owner’ of the investment of such bank or fund in India.
China’s FDI flow in India
The notification also added that an investment in India by an investor entity—which is directly or indirectly owned by a citizen or entity of a country sharing a land border with India—and which does not require prior government approval under this provision, will be subject to the reporting requirements prescribed by the Reserve Bank. China ranks 23rd in total FDI equity inflows reported into India from April 2000 to December 2025, accounting for only 0.32 per cent (US$2.51 billion).
The Finance Ministry also notified 100 percent foreign direct investment (FDI) in the insurance sector under the automatic route. According to the Foreign Exchange Management (Non-Debt Instruments) (Second Amendment) Rules, 2026, while 100 percent foreign investment will be allowed under the automatic route in insurance companies and intermediaries (including brokers), this limit for Life Insurance Corporation of India (LIC) has been set at 20 percent.
