Amendment to Press Note 3 (2020): Streamlining FDI from Land Border Countries
The Union Cabinet has approved amendments to India’s Foreign Direct Investment (FDI) policy governing investments from countries sharing a land border with India (“LBCs”), under a notification issued by the Press Information Bureau on 10th March 2026. The amendment marks the first substantive recalibration of the LBC investment framework since it was introduced in 2020, and it directly affects how investors from these jurisdictions — and the Indian entities receiving their capital — structure transactions going forward.
Background: Why Press Note 3 Exists
Press Note 3 (2020) was issued by the Government of India in April 2020, at the height of pandemic-driven market volatility, to prevent opportunistic acquisitions of Indian companies by entities based in countries sharing a land border with India or beneficially owned from them. It mandated prior government approval for any FDI from these jurisdictions, including changes in beneficial ownership arising from existing investments. In practice, this meant that even routine corporate actions, a transfer of shares, a restructuring, or a change in ultimate beneficial owner could trigger a government approval requirement if an LBC entity was anywhere in the ownership chain.
That breadth is precisely what the 2026 amendment is designed to narrow.
What the Amendment Changes
1. Beneficial Ownership Now Aligned to PMLA Thresholds
The policy now adopts the beneficial ownership thresholds prescribed under the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PML Rules) to determine whether an investment is treated as LBC-origin. Previously, beneficial ownership determination under Press Note 3 lacked a codified threshold, which created interpretive ambiguity investee companies and their advisors often had to make conservative assumptions about indirect ownership structures involving LBC entities several layers removed from the direct investor.
In practice, this gives companies and their compliance teams a single, consistent ownership test to apply the same one already used for financial sector KYC and AML purposes rather than a standalone FDI-specific interpretation.
2. Automatic Route Opened for Limited Non-Controlling Investments
Investments from LBC entities involving up to 10% non-controlling beneficial ownership may now proceed under the automatic route, subject to applicable sectoral caps and conditions — removing the prior approval requirement for this category. The investee company must still report the investment to the Department for Promotion of Industry and Internal Trade (DPIIT).
In practice, this is the most operationally significant change for portfolio-style or minority investors. A 10% non-controlling stake from an LBC-linked fund or entity no longer needs to clear the government approval queue — though the DPIIT reporting obligation means this isn’t a compliance-free pathway; it shifts the burden from pre-approval to post-investment disclosure.
3. Expedited Approvals for Priority Manufacturing Sectors
Where government approval is still required, the policy now commits to a 60-day approval timeline for investment proposals in specified strategic manufacturing sectors: capital goods, electronic capital goods, electronic components, and polysilicon/ingot-wafer supply chains. The Cabinet Secretariat retains authority to expand this list. Critically, this fast-track applies only where majority shareholding and control remain with resident Indian citizens or Indian-owned, Indian-controlled entities.
In practice, this is a targeted incentive, not a general relaxation; it rewards joint venture and minority-investment structures in priority manufacturing where Indian parties retain control, aligning with the government’s broader Atmanirbhar Bharat and semiconductor/electronics manufacturing push.
Who This Affects
The amendment is most relevant to:
- Indian companies with existing or prospective LBC-linked shareholders, directly or through layered holding structures
- Global investment funds with LBC-domiciled limited partners or general partners, evaluating Indian portfolio investments
- Manufacturers in capital goods, electronics, and semiconductor-adjacent supply chains structuring joint ventures involving LBC-origin capital
- Compliance and company secretarial teams responsible for FDI reporting and beneficial ownership disclosures under FEMA
Anticipated Impact
- Greater interpretive clarity on beneficial ownership, reducing the conservative over-compliance that the previous ambiguity encouraged
- Improved FDI inflows from global investment funds that hold LBC-linked capital but are not LBC-controlled in substance
- Faster access to capital, technology, and global supply chain linkages for priority manufacturing sectors
- Continued alignment with the government’s Atmanirbhar Bharat and domestic manufacturing objectives
What Businesses Should Do Now
Companies with any LBC exposure in their ownership chain, direct or indirect, should revisit their beneficial ownership mapping against the PML Rules thresholds now in effect, rather than waiting for the next funding round or compliance cycle to surface a gap. For manufacturers in the named priority sectors, structuring joint ventures to preserve resident Indian control is what unlocks the 60-day approval track; getting that structure wrong at the outset is costly to unwind later.
If your business needs help assessing how this amendment applies to a specific ownership structure, investment, or transaction, MBG’s Legal Advisory team, including our dedicated Investment Advisory practice, can review your FDI exposure and approval pathway under the revised framework.
Source
Press Information Bureau, “Cabinet approves changes in guidelines on investments from countries sharing land border with India,” 10 March 2026.
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2237806®=3&lang=2