The Cabinet Committee on Economic Affairs, led by Prime Minister Narendra Modi on Tuesday eased the rules related to Foreign Direct Investment (FDI) for countries that share land borders with India, including China. Sources said that the decision relaxes the strict investment regulations that had been introduced earlier.

In 2020, the government amended the FDI policy through Press Note 3 to regulate investments from countries that share land borders with India. The change was brought in during the COVID-19 pandemic to prevent opportunistic takeovers or acquisitions of Indian companies when the economic situation was uncertain.

Press Note 3 (2020) was implemented through the Foreign Exchange Management (Non-Debt Instruments) Amendment Rules, 2020, dated April 22, 2020. Under this policy, investments from neighbouring countries were placed under strict monitoring and could not take place through the automatic route.

According to a government notification issued on March 23, 2022, any entity from a country sharing a land border with India, or any investment whose beneficial owner is situated in or is a citizen of such a country, could invest in India only through the government approval route.

The rule also applied in cases where there was a transfer of ownership of existing or future FDI in an Indian company. If such a transfer, either direct or indirect, resulted in the beneficial ownership falling within the scope of the policy, then prior approval from the government was required before the investment could proceed.

With the latest decision taken by the Cabinet Committee on Economic Affairs, these strict norms have now been eased. The move is expected to simplify the investment process for entities from neighbouring countries and allow smoother inflow of foreign investments into India.

Along with the changes in FDI policy, the Cabinet also approved amendments to the Insolvency and Bankruptcy Code (IBC) Bill 2025. The amendments are aimed at ensuring a smoother insolvency process in the country. Sources said that the bill was revised based on the recommendations of the Select Committee report.

The Cabinet also approved the Corporate Laws Amendment Bill as part of the same set of decisions taken during the meeting.

The easing of the FDI rules marks an important policy change as the earlier framework required mandatory government approval for investments from neighbouring countries. By relaxing the norms, the government has made adjustments to the policy that had been introduced during the pandemic period.

The earlier policy amendment in 2020 had been seen as a measure to protect Indian companies from possible takeovers during a time when businesses were facing financial pressure due to the global health crisis. With the Cabinet’s latest decision, the investment framework for neighbouring countries has now been modified.