The Union Cabinet’s latest decision to tweak foreign direct investment (FDI) rules for countries sharing land borders with India could accelerate investments in manufacturing and strategic sectors while maintaining national security safeguards, industry experts said. 

The policy changes are aimed at facilitating capital inflows, particularly from global funds and investors from neighbouring countries such as China, into sectors, including startups, deep tech, electronics components, and capital goods. 

Experts say the revised framework could boost investor sentiment and speed up approvals in key sectors, though the final regulations, and implementation will determine the scale of fresh investment inflows. 

Also read: Cabinet eases FDI norms for China, other land bordering nations to attract investments in electronic, solar, and capital goods sector

How faster approvals can boost strategic investments

Neha Aggarwal, partner at Deloitte India, said the reforms aim to channelise both capital and technology investments into priority sectors. While it is difficult to quantify the additional foreign capital the reforms may attract, Aggarwal said private equity investments in India are already seeing strong momentum. 

“For strategic investments, fast-tracking approvals for priority sectors such as electronic components and capital goods could lead to several joint ventures, with large Indian businesses holding majority stakes,” she said. 

Aggarwal added that the revised framework could also speed up investment approvals from neighbouring countries, although the efficiency of the security clearance process will be closely watched in the coming months. 

Which sectors are likely to benefit the most? 

According to Aggarwal, the manufacturing sector, particularly component manufacturing and capital goods production, is likely to benefit the most from the revised FDI rules. She said the government appears keen to strengthen domestic supply chains by attracting foreign capital and technology into these sectors. 

Also read: India second best FDI destination for risk-adjusted returns, says Care Ratings

At the same time, she mentioned that the new policy would continue to prioritise national security. “The policy will not compromise on security concerns. The process may remain largely the same but in a more time-bound manner,” she said, while adding that clarity on beneficial ownership would bring long-awaited predictability to India’s FDI regime. 

The policy shift comes amid broader discussions about the role of Chinese investment in India’s economic strategy. However, earlier in the Economic Survey 2024, Chief Economic Adviser V. Anantha Nageswaran had noted that boosting foreign direct investment from China could help India integrate into global supply chains and strengthen exports.  

“Focusing on FDI from China appears more promising for boosting India’s exports to the United States, similar to how East Asian economies did in the past,” the survey said, adding that such an approach could also help narrow India’s growing trade deficit with Beijing. 

“With foreign investment moderating in recent months, a 60-day approval timeline strikes a pragmatic balance between attracting capital and safeguarding strategic interests while enabling supply-chain integration and access to advanced technologies,” Aggarwal noted. 

Fast-track FDI route may see limited use 

Legal experts say the expedited approval process may have limited applicability due to strict ownership conditions. Shardul S. Shroff, executive chairman of Shardul Amarchand Mangaldas & Co., told Fortune India the proposed 60-day approval timeline for investments in sectors such as manufacturing and electronics components is a positive step towards providing certainty in processing timelines. 

However, the fast-track route will apply only if majority shareholding and control of the Indian investee entity remain with resident Indian citizens or entities owned and controlled by them at all times, he said.

“Given this stringent requirement, the expedited route may have limited applicability,” Shroff said. 

Also read: Govt eases FDI norms for China, other countries sharing land border with India

The true impact of the Cabinet’s decision will become clearer once the amendments are incorporated into regulations under the Foreign Exchange Management Act and a revised policy notification, he added. 

Can the 10% threshold unlock faster FDI flows? 

Another important change is the proposal allowing investments of up to 10% without prior government approval, provided the investor entity is not controlled by persons from land-bordering countries. 

Rudra Kumar Pandey, partner at Shardul Amarchand Mangaldas & Co., said the threshold introduces a pragmatic balance between facilitating investments and retaining safeguards. 

“Minority investments up to 10% can proceed more smoothly while retaining safeguards around control and ownership,” Pandey said. 

He added that the government’s clarification that the beneficial ownership test will be applied at the level of the investor entity would bring greater regulatory certainty and help address structural complexities in global investment chains. 

What is Press Note 3 framework 

The changes effectively recalibrate the rules introduced under Press Note 3, which was implemented in April 2020 during the pandemic to prevent opportunistic acquisitions of Indian companies by investors from neighbouring countries. 

Under that framework, any investment from a country sharing a land border with India, or where the beneficial owner is in such a country, requires government approval. 

The latest amendments aim to facilitate investments from these jurisdictions in sectors such as electronic components, capital goods, and solar cell manufacturing while also providing clearer criteria for determining beneficial ownership.