India Eases FDI Rules: There is currently huge tension in the Middle East. Iran is being continuously attacked by the United States and Israel, while the Iranian army is also responding through drone attacks. Amidst the ongoing unrest in West Asia, India has become active at the diplomatic level and is trying to balance its relations with different countries. In this direction, the Indian government has taken an important step regarding Chinese companies.

Big decision for Chinese companies

The Department for Promotion of Industry and Internal Trade (DPIIT) on Monday issued a notification of changes in the Foreign Direct Investment policy. Under the new rule, foreign companies with up to 10 percent Chinese stake have been allowed to invest in India through the automatic route. However, this exemption will not apply to companies registered in China or Hong Kong or companies from other countries sharing land borders with India. Such investments will be subject to the FDI limits and conditions of the respective sectors.

What rules have changed?

Earlier, if any investor from bordering countries had even a nominal stake in a foreign company, it was mandatory for him to obtain government approval for investing in India. Now this rule will apply only to ‘Beneficial Ownership’. That is, the need for approval will be decided only on the basis of identity of the real owner.

According to the notification, the definition of ‘beneficial ownership’ will be in accordance with the provisions of the Prevention of Money Laundering Act, 2002 (PMLA).

What is the new provision?

According to PMLA, a person or institution holding 10 percent or more stake in a company will be considered as ‘beneficial owner’. This change in FDI rules was recently approved by the Union Cabinet.

During the COVID-19 pandemic, the Government of India issued Press Note 3 (2020) on 17 April 2020, under which government approval was made mandatory for investors from countries sharing land borders with India. These countries include China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan.

This rule also had an impact on global private equity (PE) and venture capital (VC) funds, especially those companies in which Chinese or Hong Kong investors had small stakes.

According to the new notification, if citizens or entities of these countries have direct or indirect stake in an investing entity and it does not require government approval, then such investments will have to be reported as per the prescribed procedure of DPIIT. According to government data, China’s share in total FDI equity inflows into India from April 2000 to December 2025 has been only 0.32 percent.

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