India working on FDI clarifications for foreign money from its land-border neighbours

New Delhi: India is working on a set of clarifications to its foreign direct investment (FDI) policy aimed at providing greater clarity on rules governing investments from countries that share a land border with the country, people familiar with the matter said.

“We are working on a clarification in the frequently asked questions (FAQ) format,” a senior government official told ET.

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These clarifications are set to provide directions to investors from countries that share land borders with India and those that enter using Hong Kong as a base. Investors have flagged several issues related to Press Note (PN) 3 of 2020 that mandates prior government approval even in sectors on the automatic route if the beneficial owner of an investment is situated in one of these countries.

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New Delhi, in May, updated the standard operating procedure (SOP) for processing FDI applications from these geographies, identifying rare earth magnets and printed circuit boards among 40 sub-sectors for speedy clearance within 60 days.

Investors are required to provide details of shareholding pattern, beneficial owners, organisation and group structures, promoters, board composition and key managerial personnel, along with corresponding citizenship status, and details of control rights in the reporting framework.

One industry executive said though the timeline is fixed at 60 days, the amount of paperwork required is substantial, with investors getting several queries that prolong the process of application itself.

This came after the government allowed foreign companies having a Chinese or Hong Kong shareholding of up to 10% (or non-controlling stake) to invest in India under the automatic route.

Industry experts, however, said that while the PN2 of 2026 provided some relief, particularly to private equity players, some issues still remain.

Investors from third countries that have been using Hong Kong as a base have represented before the government on application of rules to ownership structures and arrangements.

“For structures where Hong Kong is only an intermediary layer and the natural person is a Non-LBC (Land Border Country) person/entity, prior approval under PN3 is still required, which defeats the whole interpretation of beneficial ownership under PML Rules,” said Anshul Jain, national leader – regulatory, PwC India. “Many foreign companies route their Asia investments through Hong Kong. While they have no LBC ownership and the FDI is coming from Non-LBC locations, but just because the intermediary layer is in Hong Kong, an additional requirement of PN3 approval gets added, which is time consuming and adds uncertainty for these investments.”

New Delhi had issued PN3 in 2020 following border tensions with China.

Relations between both countries have since improved, with Chinese President Xi Jinping expected to attend the BRICS summit in New Delhi next month.

The proposed clarifications could help address some of the concerns raised by the industry.