The Department for Promotion of Industry and Internal Trade (DPIIT) has amended Para 3.1.1 of the Consolidated FDI Policy, which governs investment from countries sharing a land border with India — a rule originally introduced via Press Note 3 (2020) on April 17, 2020, primarily aimed at scrutinizing Chinese investment.
Under the revised rule, any non-resident entity can invest in India under the FDI Policy except in prohibited sectors. However, an entity or citizen of a country sharing a land border with India — or where the beneficial owner of an investment is a citizen of such a country — can invest only through the Government route, requiring prior approval. Citizens of Pakistan or entities incorporated in Pakistan can invest only through the Government route, and only in sectors other than defence, space, atomic energy, and other prohibited sectors.
If ownership of any existing or future FDI in an Indian entity is transferred — directly or indirectly — in a way that results in beneficial ownership falling under this restriction, that change in beneficial ownership will also require prior Government approval.
The notice defines “beneficial owner” per Section 2(1)(fa) of the Prevention of Money-Laundering Act, 2002, and Rule 9(3) of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. Beneficial ownership is deemed to rest with a bordering country if citizens or entities from that country — acting individually or collectively — hold rights or entitlements above the thresholds prescribed under Rule 9(3), or have the ability to exercise control or ultimate effective control over the investor entity or investee entity.
Investments from an entity with any direct or indirect ownership by a citizen or entity of a bordering country, where prior Government approval is not required, will still be subject to reporting requirements under DPIIT’s Standard Operating Procedure, in addition to applicable sectoral caps, entry routes, and other conditions.
The change takes effect from the date of FEMA notification. The order is signed by Jai Prakash Shivahare, Joint Secretary to the Government of India, and references DPIIT file number 5(5)/2020-FDI Policy (Pt-1), dated 15.03.2026.
The Department of Economic Affairs and the Reserve Bank of India’s Foreign Exchange Department have been asked to incorporate the changes into the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, and the FIRMS portal.
