FDI policy rejig for border nations spur Rs 5k cr investment: DPIIT

Why in the News

A relaxation in India’s rules on investment from land bordering countries has drawn 29 foreign direct investment (FDI) proposals worth ₹4,895.65 crore up to 20 August 2026. The relaxation was notified in March 2026. It permits a foreign entity carrying non controlling beneficial ownership of up to 10 per cent from a land bordering country to invest through the automatic route. Press Note 3 of 2020 had required prior government approval for any such investment, however small that land border shareholding was. What is now tested is whether a shareholding threshold can separate incidental Chinese exposure inside a global fund from Chinese strategic control of an Indian asset.

What is Press Note 3 of 2020?

1. The restriction: Imposed in April 2020, it made government approval mandatory for investment from any country sharing a land border with India.
2. Stated purpose: It was aimed at preventing opportunistic takeovers of Indian firms during the Covid-19 pandemic, and stayed in force amid heightened national security concerns after the Galwan clash later that year.
3. Country neutral drafting: The framework named no country, and China is the largest source of investment among India’s land neighbours.
4. Uneven bite: Entities of Bangladesh and Pakistan can invest only through the government route. Flows from Nepal, Myanmar, Bhutan and Afghanistan are very small as a share of India’s total foreign investment.

What conditions does the relaxed route carry?

1. Indian control retained: The majority shareholding and control of the investee entity must rest at all times with resident Indian citizens, or with resident Indian entities that are themselves owned and controlled by resident Indian citizens.
2. Threshold is a ceiling, not a waiver: A land border holding above 10 per cent still routes the investment through government approval, so the automatic route covers only diluted exposure.
3. Time bound clearance for named goods: A 60 day deadline was approved for clearing proposals from land bordering countries, including China, in capital goods, electronic capital goods, electronic components, polysilicon, and ingot wafer for solar cells.

Where has the relaxed route drawn money from?

1. Sectors: The proposals span information technology, artificial intelligence, information and communication, manufacturing, pharmaceuticals, data centres and transport services.
2. Jurisdictions: They were reported by investors and entities based in Mauritius, the United States, the Republic of Korea, Japan, Singapore, Luxembourg and the Cayman Islands, among others.
3. Stated gain: The government’s own assessment is that the reform gives investors greater certainty, cuts transaction time and strengthens ease of doing business in India.

Where has the Centre gone further than the ownership threshold?

1. A strategic sector joint venture: In July 2026 the Centre cleared a joint venture between Dixon Technologies (India) Limited and Vivo Mobile India Limited for manufacturing electronic devices and smartphones, one of the first major approvals to Chinese investment in a strategic sector.
2. Entry into power tenders: The Finance Ministry in July allowed four Chinese power equipment manufacturers with factories in India to bid for government tenders on critical power projects.
3. A procurement exemption: TBEA Energy, Nanjing Electric India, New Northeast Electric India and Taikai Electric (India) were exempted from the public procurement rule requiring entities from land bordering countries to register with the relevant Indian authority before bidding.
4. What is at stake in that equipment: The four firms make transformers, wires, high voltage switchgear and gas insulated switchgear used in transmission lines. New Northeast Electric India lists at least 11 transmission line projects across India.

Challenges to the revised land border investment framework

1. Beneficial ownership is hard to trace through layers: A 10 per cent test presumes the ultimate holder is visible, which layered holding structures defeat. Eg. Several of the reported proposals came through Mauritius and the Cayman Islands. The ultimate holder is not on the local register in either jurisdiction. Fix. Require a declaration of the ultimate beneficial owner at every layer, verified against the significant beneficial ownership register maintained under the Companies Act, 2013.
2. A shareholding cap does not bound influence: Control travels through contracts as much as through equity. Eg. A minority holder with board nomination rights or a sole technology licence can direct a joint venture without owning a majority. Fix. Test control by board composition and contractual veto rights, not by shareholding percentage alone.
3. Screening capacity is spread thin: No single body owns the security review of an inbound proposal. Eg. Screening runs across the Department for Promotion of Industry and Internal Trade, the Ministry of Home Affairs and the administrative ministry, each with its own timeline. Fix. Constitute a standing inbound investment security review committee with a statutory disposal deadline.
4. Technology dependence persists in the sectors being opened: Approval eases entry without changing who owns the process knowledge. Eg. India imports most of its polysilicon and ingot wafer requirement for solar cells. Fix. Tie approval in those goods to a phased technology transfer and a rising domestic sourcing commitment.
5. The government route stays slow for everyone else: Only the notified goods got a deadline, so other proposals still face open ended review. Eg. Land border proposals outside the notified list have historically taken well over a year to clear. Fix. Extend the 60 day discipline to every proposal on the government route, with reasons recorded for any extension.

Conclusion

The relaxed framework has been operative since March 2026 and has produced 29 reported proposals in five months. Press Note 3 itself stays on the books for any land border holding above the threshold, so the restriction has been narrowed rather than withdrawn. The next milestone is disposal of proposals under the 60 day window for the notified goods, and whether the Dixon and Vivo clearance becomes a template for a wider, sector by sector opening.

Foreign Direct Investment in India

1. About: Foreign direct investment is cross border investment that establishes a lasting interest in an enterprise abroad, in the definition used by the Organisation for Economic Cooperation and Development.
2. Routes: Most sectors permit 100 per cent foreign investment through the automatic route, and the remainder require prior government approval.
3. Cumulative scale: India’s cumulative inflows crossed about $1.14 trillion between April 2000 and December 2025, with nearly 70 per cent of that arriving in the last decade.
4. Recent flows: Gross inflows reached a three year high of $81 billion in 2024-25, led by services and manufacturing.

Laws and Rules Governing Foreign Investment

1. Foreign Exchange Management Act, 1999: The parent statute governing cross border transactions and capital account flows into and out of India.
2. Foreign Exchange Management (Non-debt Instruments) Rules, 2019: Notified by the Finance Ministry, these fix sectoral caps, entry routes and pricing guidelines for equity investment.
3. Consolidated FDI Policy Circular: A single compiled statement of sectoral policy, which Press Notes amend between editions.
4. Competition Act, 2002: Acquisitions above notified thresholds need Competition Commission of India clearance.

Challenges in Attracting Foreign Direct Investment

1. Policy unpredictability: Rules that change mid cycle force investors to restructure entities already built. Eg. Repeated shifts in e-commerce foreign investment norms forced marketplace operators to redraw their seller structures. Fix. Publish a standstill period between the notification of a sectoral rule change and its taking effect.
2. Land acquisition: Site control is the binding constraint on greenfield manufacturing. Eg. POSCO abandoned its Odisha steel project after a decade of unresolved land disputes. Fix. Build titled, pre cleared land banks held by state industrial corporations and offered on long lease.
3. Geographic concentration: Inflows cluster in services and a few urban states. Eg. A handful of states absorb the bulk of equity inflows reported each year. Fix. Offer differential incentives for greenfield investment in aspirational districts.
4. Intellectual property enforcement: Weak enforcement raises the risk premium on technology intensive investment. Eg. India remains on the United States Priority Watch List on intellectual property enforcement. Fix. Create dedicated commercial intellectual property benches with fixed disposal timelines.
5. Clearance friction across governments: A central approval does not deliver the state permissions a project actually needs. Eg. The National Single Window System still does not carry every state level clearance. Fix. Make full state onboarding to the single window a condition for central infrastructure co-funding.

Back2Basics: Department for Promotion of Industry and Internal Trade

1. Parent ministry: It sits under the Ministry of Commerce and Industry. It was the Department of Industrial Policy and Promotion until internal trade was added in 2019.
2. Policy mandate: It frames and administers the Consolidated FDI Policy and issues the Press Notes that amend it.
3. Programmes run: It runs Startup India and Make in India, and maintains the National Single Window System.

“[2020] With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

(a) It is the investment through capital instruments essentially in a listed company.

(b) It is a largely non-debt creating capital flow.

(c) It is the investment which involves debt-servicing.

(d) It is the investment made by foreign institutional investors in the Government securities.