India Eases Press Note 3 FDI Rules With Beneficial Ownership Test and Fast-Track Approvals

India has approved targeted amendments to its foreign direct investment (FDI) framework for investors from countries sharing land borders with India (LBCs), introducing a codified beneficial ownership test, a 10% safe harbour for non-controlling investments, and a 60-day fast-track approval window for specified manufacturing sectors. The revised norms are expected to help process around 600 pending investment applications, with gross FDI projected to reach $90 billion in FY26.

The Union Cabinet on March 10 relaxed Press Note 3 (PN3 of the 2020 series) by allowing the automatic approval route for overseas investors with up to 10% beneficial ownership from LBC countries. While the Department for Promotion of Industry and Internal Trade (DPIIT) issued the change through Press Note 2 of the 2026 series on March 15, the Cabinet decision has not yet come into force as stakeholder consultations are underway to align it with the Foreign Exchange Management Act (FEMA). DPIIT joint secretary Jai Prakash Shivahare confirmed that the Department of Economic Affairs will have to issue the notification under FEMA, adding that the inter-ministerial consultation process is continuing because the changes require considerable "fine-tuning" with existing laws.

The amended policy incorporates the definition and criteria for determining "Beneficial Owner" under the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, creating a harmonised standard across investment and anti-money laundering frameworks. The BO test will now be applied at the level of the investor entity rather than through an open-ended lookthrough of all upstream layers. Investments where LBC investors hold only a non-controlling beneficial ownership of up to 10% in the investor entity will be permitted under the automatic route, subject to applicable sectoral caps, prescribed entry routes, and relevant conditions under the FDI Policy. Such investments will not require prior government approval solely on account of limited LBC nexus but must report relevant information to DPIIT.

The policy provides for regulatory clearances to eligible applicants within 60 days. Proposals involving LBC investments in specified manufacturing sectors — capital goods, electronic capital goods, electronic components, and polysilicon and ingot-wafer — will be processed and decided within that timeframe. The Committee of Secretaries under the Cabinet Secretary is empowered to revise the list of specified sectors from time to time. In these fast-track cases, majority shareholding and control of the Indian investee entity must remain with resident Indian citizens or resident Indian entities owned and controlled by resident Indian citizens.

The seven identified sectors are rare-earth permanent magnets, rare-earth processing, polysilicon and ingot-wafer, advanced battery components, electronic component manufacturing, capital goods manufacturing, and electronic capital goods. Additional sectors or activities may be added later with approval from the competent authority. All such investments will still require political and security clearances. The automatic route does not apply to companies incorporated in China, Hong Kong, or any other land-border-sharing country such as Pakistan or Bangladesh.

The government is also evaluating a broader revamped framework for PN3 that may introduce a three-tier structure based on investment size and strategic importance. Under discussion is a de minimis carve-out for automatic approval of investments below 10% in low-risk sectors, expected to benefit startups and smaller enterprises relying on global funds with indirect Chinese exposure. In sectors deemed strategic — such as solar technologies, battery storage, and active pharmaceutical ingredients (APIs) — the government may enable fast-track clearances to accelerate domestic capacity building.

PN3 was originally introduced in April 2020 to curb opportunistic takeovers of Indian companies in the wake of the COVID-19 pandemic. Over time, its blanket applicability to non-strategic, non-controlling interests was perceived as adversely affecting investment flows from global investors, including private equity and venture capital funds. The current amendments respond to these concerns by introducing an objective BO standard, creating a 10% non-controlling safe harbour, and fast-tracking decisions in defined high-priority manufacturing sectors while retaining Indian majority control.

India attracted gross FDI of $88.29 billion in the April-February period of 2025-26, while net FDI during the same period stood at about $6.3 billion. Gross FDI in the full 2024-25 fiscal year was $80.65 billion, while net FDI was around $0.96 billion. Invest India, DPIIT's investment promotion agency, has helped secure 60 projects worth over $6.1 billion in investments in 2025-26, estimated to generate more than 31,000 potential jobs.