The Department for Promotion of Industry and Internal Trade (DPIIT) issued Press Note No. 2 (2026 Series) on March 15, 2026, amending the Consolidated Foreign Direct Investment (FDI) Policy to establish a regulated framework for capital inflows from countries sharing a land border with India (LBC). The notification provides a structured mechanism for investments originating from or involving beneficial ownership in LBC jurisdictions, specifically designed to bolster domestic manufacturing in critical energy segments. This regulatory shift aims to provide clarity on investment pathways while addressing previous interpretational ambiguities regarding beneficial ownership and security-linked oversight.
Technical Scope: Covered Components and Segments
The new directive identifies specific technical items and manufacturing segments subject to this framework. These components align with India’s broader strategic initiatives, such as the Production Linked Incentive (PLI) scheme and the National Critical Mineral Mission. The following items are explicitly covered:
- Polysilicon and Ingot-Wafers
- Capital Goods and Electronic Capital Goods
- Electronic components
- Advanced Chemistry Cell (ACC) and battery components
- Solar PV modules and high-efficiency cells
- Ancillary components including solar glass, backsheets, and encapsulants
- Rare earth magnets
Procedural Timelines
The DPIIT has established an expedited logistical framework for the clearance of investment proposals in the specified manufacturing sectors. Under this fast-track measure, LBC investment proposals shall be processed and decided upon within a 60-day timeline.
To utilize this expedited process, investors must follow a new Standard Operating Procedure (SOP) as laid down by the DPIIT. This logistical framework is intended to streamline evaluations in segments such as polysilicon and ingot-wafer manufacturing, where India currently maintains significant upstream import dependence. As of June 2025, India’s operational capacity for polysilicon and wafers remained low, at 3.3GW and 5.3GW respectively, necessitating a more definitive framework for technology and capital transfer in these upstream segments.
Beneficial Ownership and Control Thresholds
The framework incorporates specific criteria for determining “Beneficial Ownership,” aligning the FDI policy with Section 2(1)(fa) of the Prevention of Money-laundering Act (PMLA), 2002, and Rule 9(3) of the PMLA (Maintenance of Records) Rules, 2005.
Key regulatory thresholds and control conditions include:
- 10% Beneficial Ownership Threshold: Foreign investors from non-LBC jurisdictions are permitted to invest via the automatic route provided the beneficial ownership held by LBC citizens or entities does not exceed 10%.
- Vested Interest Criteria: Beneficial ownership is considered vested in an LBC if citizens or entities of a country sharing a land border with India hold rights or entitlements—directly or indirectly, individually or cumulatively—that exceed PMLA thresholds or enable the exercise of control over the foreign investor.
- Resident Indian Control: For investments in these specific manufacturing sectors, the framework mandates that majority shareholding and control of the Indian investee entity must remain with resident Indian citizens or resident Indian entities owned and controlled by resident Indian citizens at all times.
- Prior Approval Requirement: Direct investments by entities situated in LBC jurisdictions, or by citizens of such countries, continue to require prior government approval regardless of the ownership percentage or investment value.
Reporting Obligations and Compliance
The framework introduces mandatory reporting requirements for foreign investors to ensure continuous regulatory oversight. Any investment made in India by foreign investors that involves any direct or indirect ownership by an LBC citizen or entity, but which does not trigger the requirement for prior government approval, must be reported.
These reports must be submitted according to the format prescribed in the DPIIT’s Standard Operating Procedure. This compliance measure ensures the government maintains a record of LBC-linked capital entering domestic energy and electronics supply chains, even when those investments qualify for the automatic route under the 10% beneficial ownership threshold.
Leave a Comment