India Eases FDI Rules for Neighbouring Countries With New 10% Ownership Limit

The Indian government has relaxed foreign direct investment (FDI) rules for countries sharing land borders with India, introducing a new threshold that allows limited investments without prior government approval.

The decision, cleared by the Union Cabinet, is aimed at encouraging foreign investment while maintaining safeguards to protect strategic control over Indian companies.

What the New 10% Rule Means

Under the revised policy, investors from neighbouring countries can now hold up to 10% beneficial ownership in an Indian company without requiring government approval.

Previously, investments from such countries were subject to stricter scrutiny due to national security concerns and required approval from the government.

The new rule provides greater flexibility for companies seeking foreign investment, particularly startups and emerging businesses.

Boost for Startups and Fundraising

One of the key objectives of the policy change is to make it easier for Indian startups to access international funding.

Many early-stage companies rely on venture capital and global investment funds that may have shareholders from multiple countries.

The revised rule allows small indirect investments without triggering lengthy regulatory approval processes, which could help startups raise funds more efficiently.

Supporting Manufacturing and Economic Growth

The government believes the policy change will also support manufacturing expansion and economic development.

By easing certain investment restrictions, India hopes to attract more international capital into sectors such as technology, manufacturing, infrastructure and services.

Officials say the change is part of a broader strategy to strengthen India’s position as a global investment destination.

Safeguards Still in Place

Despite the relaxation, authorities have clarified that safeguards remain in place to prevent hostile takeovers or excessive influence by foreign entities.

Investments exceeding the 10% beneficial ownership threshold will still require government approval.

This ensures that the government can review and regulate significant investments that may have strategic implications.

Background of Earlier FDI Restrictions

India had earlier tightened FDI rules for neighbouring countries to prevent opportunistic acquisitions during periods of economic uncertainty.

Those rules required government approval for all investments from countries sharing land borders with India.

The new policy represents a balanced approach, easing restrictions for smaller investments while maintaining oversight for larger stakes.

Impact on Investment Climate

Market experts believe the revised rule could improve investor confidence and encourage more international participation in Indian businesses.

By simplifying investment procedures for small stakes, the government hopes to create a more predictable and investor-friendly regulatory environment.

The move is also expected to support India’s long-term plans to attract global capital and strengthen domestic industries.