On March 15, 2026, the Government of India issued Press Note No. 2 (2026 Series) in relation to investments from countries sharing land borders with India. Press Note 2 sought to amend Press Note No. 3 (2020 Series), in relation to investments from such countries. Any foreign investor with beneficial owners from these countries on their shareholding table may still invest through the automatic FDI route, provided that (a) such beneficial ownership does not exceed the applicable ownership thresholds prescribed under Rule 9(3) of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005; (b) such beneficial ownership is not accompanied by the ability to exercise control over the investor through any other means, and (c) such beneficial ownership is not accompanied by the ability to exercise ultimate effective control over the investee entity in India in any manner.
Our recent Client Alert had explained the key changes introduced by Press Note 2, including the clarification on the manner of determining beneficial ownership. The Client Alert had also noted that the changes contemplated under Press Note 2 would take effect only upon the corresponding notification under the Foreign Exchange Management Act, 1999. Link to the Client Alert - https://www.argus-p.com/updates/updates/border-games-india-recalibrates-its-fdi-framework/
The Ministry of Finance, Department of Economic Affairs has now notified the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026 published in the Official Gazette on May 2, 2026. The notified amendments are broadly consistent with Press Note 2. The notified amendment rules also contain certain additional clarifications. Notably, they provide that a multilateral bank or fund of which India is a member will not be treated as an entity of any particular country, and no country will be treated as the beneficial owner of investments made by such bank or fund in India.
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