New FDI Rules: Overseas Firms with Chinese Stake Can Now Invest in India

New Investment Guidelines for Foreign Companies

New Delhi: The Finance Ministry has announced a new policy allowing foreign companies with up to 10% Chinese ownership to invest in India through the automatic route under the Foreign Exchange Management Act (FEMA).

This decision follows the Union Cabinet's approval of amendments to the press note (PN) 3 of 2020 from the Department for Promotion of Industry and Internal Trade (DPIIT) in March.

Under these new amendments, foreign entities with Chinese or Hong Kong shareholding of up to 10% can invest in sectors where Foreign Direct Investment (FDI) is allowed automatically, provided they meet specific sectoral conditions.

However, these relaxed rules do not extend to companies registered in China, Hong Kong, or any other nations sharing land borders with India.

Previously, any foreign firm with shareholders from these bordering countries, even holding a single share, was required to obtain prior approval for investments in India across all sectors.

Now, these restrictions will only apply to beneficial owners.

Following the Cabinet's decision, the DPIIT issued a notification in March via press note 2 (2026 series) to formalize the changes.

The Department of Economic Affairs (DEA) clarified that the term 'beneficial owner' aligns with the definition in the Prevention of Money-laundering Act, 2002, and will be determined according to the criteria set out in the Prevention of Money-laundering (Maintenance of Records) Rules, 2005.

According to these rules, a controlling ownership interest is defined as owning or having rights to more than 10% of a company's shares, capital, or profits.

The DEA's notification addresses amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules 2019, following DPIIT Press Note No 2 (2026 Series).

To prevent opportunistic takeovers of Indian firms during the COVID-19 pandemic, the government had previously revised the FDI policy through Press Note 3 (2020) on April 17, 2020.

Additionally, the notification states that a multilateral bank or fund, of which India is a member, will not be classified as an entity from a specific country, nor will any country be considered the beneficial owner of investments made by such banks or funds in India.

Nonetheless, investments from entities with any direct or indirect ownership by citizens or entities from countries sharing land borders with India will still be subject to reporting requirements set by the Reserve Bank.

As of now, China ranks 23rd in terms of FDI equity inflow into India, contributing only 0.32% (approximately USD 2.51 billion) from April 2000 to December 2025.