FDI policy changed: 60-day clearance for border country investments in electronics, capital goods

The Union Cabinet chaired by Prime Minister Narendra Modi has approved key changes to the foreign direct investment (FDI) policy governing investments from countries sharing land borders with India, introducing a defined approval timeline and easing certain restrictions to attract global capital into manufacturing, startups and deep-tech sectors. The move is aimed at improving ease of doing business while maintaining safeguards introduced under Press Note 3 (2020).

60-day timeline for approvals

Under the revised policy, investment proposals from land-bordering countries (LBCs) in specified sectors will be processed within 60 days, providing greater certainty to companies planning joint ventures or technology collaborations.

The fast-track mechanism will apply to sectors such as capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer manufacturing, which are considered critical for domestic value addition and supply-chain resilience. The list of eligible sectors may be revised by a Committee of Secretaries headed by the Cabinet Secretary.

Officials said the timeline will help companies enter partnerships faster, expand manufacturing in India, and integrate with global supply chains.

Beneficial ownership clarified

The Cabinet has also incorporated a formal definition of Beneficial Owner (BO) in line with the Prevention of Money Laundering Rules, 2003, a standard widely used by global investors. The beneficial ownership test will be applied at the level of the investor entity.

Investments where beneficial ownership from land-bordering countries is up to 10% and non-controlling will now be permitted under the automatic route, subject to sectoral caps and mandatory reporting to the Department for Promotion of Industry and Internal Trade (DPIIT).

This change is expected to ease compliance for global private equity and venture capital funds that have diversified investor bases, including small stakes from neighbouring jurisdictions.

Vaibhav Kakkar, Senior Partner at Saraf and Partners, said the move signals a calibrated policy shift rather than a complete rollback of restrictions.

“India's move to relax FDI norms for countries sharing land borders is expected to reflect a nuanced recalibration rather than a wholesale liberalization of existing regulations. By diluting the blanket approval regime introduced in 2020, the government would reduce transactional friction for genuine investors, including from China, while retaining sectoral safeguards,” he said.

He added that the changes could help revive deal activity. “The change is likely to facilitate cross-border M&A, minority investments and delayed funding rounds, particularly in capital-intensive sectors such as manufacturing, and the startup ecosystem, where several Indian startups have historically relied on Chinese venture capital. However, sectoral caps, beneficial ownership disclosures and other conditions will continue to apply,” Kakkar noted.

Press Note 3 restrictions

India had tightened FDI rules in April 2020 through Press Note 3, requiring government approval for investments from countries sharing land borders with India to prevent opportunistic takeovers during the pandemic. Over time, the rule was seen as slowing investment flows, especially where investors had only minor or indirect stakes linked to such jurisdictions.

Boost to some sectors

The government said the revised norms will help attract higher FDI into electronics, solar equipment, capital goods, startups and deep-tech ventures, while ensuring that majority ownership in sensitive sectors remains with Indian entities.

Officials said the changes will support Atmanirbhar Bharat, improve access to technology, and strengthen India’s position as a global manufacturing hub, while ensuring that foreign investment flows remain predictable, secure and aligned with national interests.