India's FDI Framework Shows Signs of Overhaul

India's Revised FDI Framework: Enhancing Ease of Doing Business and Clarity for International Investors

March 16, 2026

The Government of India (GOI) has issued a revised framework for foreign direct investment (FDI) from countries sharing a land border with India (LBCs), aiming to enhance the ease of doing business, unlock greater capital for startups, manufacturing sector, and deep-tech firms, and provide long-awaited clarity to international investors.

Background

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The revised framework reflects a recalibration of the original framework introduced through Press Note 3 of 2020 (PN3), which was implemented in April 2020 to curb opportunistic acquisitions of Indian companies during the COVID-19 pandemic and heightened geopolitical tensions. PN3 imposed prior government approval requirements on investments from LBC investors, resulting in significant interpretational challenges and uncertainty for investors and authorized dealer banks.

Key Features of the Revised Framework

1. Automatic Route Access: Investments with non-controlling beneficial ownership from LBC jurisdiction of up to 10% may now qualify under the automatic route, subject to applicable sectoral caps, entry routes, attendant conditions, and reporting requirements.
2. DPIIT Reporting: Such investments remain subject to DPIIT-prescribed reporting by the investee entity and may entail additional compliance considerations for investors and AD Banks.
3. Investor-Level Assessment: BO determination is to be undertaken at the level of the investor entity.
4. Alignment with PMLA Standards: BO is to be determined in accordance with Section 2(1)(fa) of the Prevention of Money-laundering Act, 2002, read with Rule 9(3) of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, as amended from time to time.
5. Look-through Test: An investment will be regarded as having LBC nexus where citizens or entities from such jurisdictions, whether individually or cumulatively or independently or collectively, directly or indirectly, hold rights or entitlements exceeding the prescribed PMLA thresholds or exercise control over the investor entity.

Expedited Approvals for Strategic Manufacturing

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The GOI has introduced a time-bound approval process for strategic manufacturing investments, aiming to strengthen India's position as a global manufacturing hub and further the "Atmanirbhar Bharat" initiative.