FDI Policy Update India: Press Note 3 Changes for China and Neighbouring Countries

FDI Policy Update India: Press Note 3 Changes for China and Neighbouring Countries

The Union Cabinet chaired by Prime Minister Shri Narendra Modi has reviewed and ease the FDI norms related to China and other countries sharing land border with India (LBCs)  on 10^th March, 2026 by amending 2020 restricitons. Earlier, any investment from countries  sharing land border with India required approval of the government. But now, the government has eased the rules by allowing small investments without government approval, however required government approval for large or sensitive investments. The amendments in the FDI Policy aim to unlock greater FDI inflows from global funds for startups and deep techs, take forward the agenda of ease of business doing.

What is Press Note 3?

Press Note 3 is an Indian (Foreign Direct Investment)FDI Policy has introduced by the government in April 2020. The policy state that government approval required if investment is from countries sharing land border with India. This applies to investors from countries like china, Bhutan, Bangladesh, Nepal, Myanmar and Afghanistan. Even if investor from other countries but ultimate owner is from these countries then also government approval required.

Why Press Note 3 has introduced?

1. In order to curb opportunistic takeovers/acquisitions of Indian companies due to the COVID-19 pandemic.
2. Various foreign companies taking advantage of covid- 19 by buying large stake in the financial weak companies.In order to control this government introduced press note 3.
3. To safeguard the national security and economic interest of the Country.
4. These rules apply to all neighbouring countries but the core objective is to target Chinese investment as they have large stake in Indian startup and technology.

Key Changes in Press Note 3:

1. Investment from countries sharing land border holding upto 10% stake are now allowed from automatic route and no government approval required.
2. Investment will be assessed based on the Beneficial Ownership criteria to test who is the real owner.
3. FDI from land-border sharing countries will now be allowed in selected manufacturing sectors such as: Capital goods; Electronic capital goods; Electronic components; Solar manufacturing inputs such as polysilicon and ingot-wafer shall be processed and decided within 60 days.
4. The majority shareholding and control of the Investee entity will be with resident Indian citizen(s) and/or resident Indian entity(ies) owned and controlled by resident Indian citizen(s), at all times.

Before/After Relaxation in PN3:

 Earlier all investments were required approval of the Government but now small and non-controlling investors are allowed in automatic route and no Government approval required.

Benefits:

1. The new guidelines will provide clarity and ease of doing business in India.
2. It facilitate investments which can contribute towards greater FDI inflows, access to new technologies, domestic value addition, expansion of domestic firms and integration with global supply chain.
3. It would help in leveraging and enhancing India’s competitiveness as a preferred investment and manufacturing destination.
4. Increased FDI inflows would supplement domestic capital, support the objectives of Atmanirbhar Bharat, and accelerate overall economic growth.
5. Protection in Sensitive Sectors.
6. Safeguard country’s economic interest and create balance with national security.

Investor Must ensure while investing that:

1. To check beneficial ownership i.e who is the real owner of investor entity.
2. To check/determine whether the investment is controlling or non-controlling.
3. To identify whether sector is permitted or sensitive and restricted.
4. To choose correct route whether automatic or government approval route.

Conclusion:

1. The amendment in Press note 3 brings an ease of doing business and create a balance between economic growth and national security.
2. It also shows the intention of India to grow globally by providing partial relaxation in the FDI Policy.
3. It also stabilize the relation with the neighbours countries by not fully restricted and partially allowing. However, FDI policy restricted certain sectors.
4. 60 days approval timeline provided to help companies enter into joint ventures.

For futher reference the official notification: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2237806&reg=3&lang=2