Brief Overview:

India is proposing a quiet but significant reset of its foreign investment framework – moving from the existing Non-Debt Instruments regime to a more consolidated structure covering investment routes, pricing, transfers, international listings and compliance responsibility.

Technical Details:

Key Highlights

1) Shift from the current “Non-Debt Instruments” framework to a broader and more unified “Foreign Investment” framework governing investments by non-residents in equity instruments of Indian entities.

2) Introduces the concept of Foreign Controlled Entities (FCEs)- covering Indian companies, LLPs and investment vehicles that are owned or controlled by persons resident outside India.

3) Expressly permits foreign investment through pledges, gifts, swaps and international stock exchange transactions.

4) Revised control test refers to arrangements conferring 10% or more voting rights.

5) Incorporates the framework for direct listing of Indian public companies on permitted international stock exchanges.

6) Express carve out of investments made by non-residents in financial institutions established in an IFSC.

Takeaways:

The most substantive change is the move towards a more ownership-and-control based foreign investment framework. The introduction of the FCE concept, express recognition of indirect foreign investment and a more detailed control test could have practical implications for downstream investments and group structures involving foreign investors.

For further details, please see:

Draft – Foreign Exchange Management (Foreign Investment) Rules, 2026

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