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13 March 2026
Union Cabinet Approves Changes to PN3 on Foreign Investments from Land Border-Sharing Countries
 
To prevent opportunistic takeovers and acquisitions of Indian companies during COVID-19, the Government amended the FDI Policy through Press Note 3 (2020), dated 17 April 2020 (PN3).

Under PN3, an entity from a country sharing a land border with India can invest in or acquire shares of an Indian company only after seeking government approval. This also applies if the beneficial owner of the investment is located in or is a citizen of such a country. These restrictions cover investors from countries such as China, Bangladesh, and Hong Kong.

  Recent Development

The Union Cabinet, on 10 March 2026, approved certain amendments to PN3 to ease certain aspects of the existing restrictions on foreign investments from countries sharing land borders with India.

  Key Relaxations

The Union Cabinet amendment introduces several relaxations. The definition of 'beneficial ownership' will be in accordance with the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.
  • The beneficial ownership test shall be applied at the level of the investor entity.
  • Foreign investors from land-border-sharing countries with non-controlling beneficial ownership of up to 10% may invest under the automatic route. They must meet other conditions of the FDI Policy.
  • Investments from land-border sharing countries in certain sectors or activities will be processed within 60 days. This applies to manufacturing in capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer.
  • A Committee of Secretaries under the Cabinet Secretary is empowered to revise the list of specified sectors.
  • For these proposals, majority shareholding and control of the investee entity must always stay with resident Indian citizens. Alternatively, it must remain with resident Indian entities owned and controlled by resident Indian citizens.
Our Comments

The recent relaxation introduced through PN3 marks an initial step toward easing restrictions on foreign investments from the specified countries. Earlier, the provisions of PN3 created several interpretational challenges, particularly in determining the concept of a "beneficial owner."

The introduction of a defined timeline for processing investment proposals is also a welcome change, as the earlier lack of a prescribed timeline often led to uncertainty for investors and delays in investment decisions.

However, the present relaxation largely benefits cases where the beneficial interest is non-controlling and below 10%. For proposals in the above-mentioned sectors, while a 60-day processing timeline has been introduced, the requirement of majority shareholding and control by resident Indian citizens continues to apply.

Overall, the Government appears to be taking a calibrated approach, offering limited relaxations while maintaining stricter controls on investments from these jurisdictions.

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