This article was written by Pandurang Gireesh, Universal School of Law (Affiliated to Karnataka State Law University). This article discusses how the framework has now been relaxed in part, with India permitting certain non-controlling investments of up to 10% by investors from land-bordering countries through the automatic route in 2026. The change is particularly relevant to Chinese investment, which has faced increased scrutiny under the post-2020 framework.
I. INTRODUCTION
India’s approach to foreign investment from countries sharing a land border changed significantly in 2020, when such investments were brought within a government approval framework.
The change was intended to allow greater scrutiny of investments that could raise concerns beyond ordinary commercial participation, given the tensions faced at that point in time.
The framework has now been relaxed in part, with India permitting certain non-controlling investments of up to 10% by investors from land-bordering countries through the automatic route in 2026. The change is particularly relevant to Chinese investment, which has faced increased scrutiny under the post-2020 framework.
This relaxation raises an important question – whether a fixed ownership threshold is sufficient to distinguish a passive foreign investment from an investment that may provide meaningful influence over an Indian business. The issue becomes more complicated where an investor holds a small shareholding but receives rights that give them a greater role in the company.
II. THE REVISED FOREIGN INVESTMENT FRAMEWORK
The 2020 policy change was made keeping in mind the growing Chinese participation in India’s technology, manufacturing and start-up sectors. The government approval requirement allowed such investments to be examined before the investment could be made.
The 2026 relaxation represents a shift in approach by removing the need for government approval for every investment falling within the framework.
A threshold of 10% has been put in place to make foreign investment more efficient; this threshold could be of commercial use to minority investments which are common in early-stage companies.
Requiring government approval in every case would make smaller investments difficult to complete, with transaction timelines and compliance costs increasing even where the investor has no meaningful control over the Indian entity.
This also becomes relevant for businesses seeking foreign capital, with minority investors wanting to invest in an Indian company without taking control of the business. This would ensure that investment is hassle-free and contributes to the ease of doing business.
The practical significance of the relaxation can already be seen in the Government’s disclosure in August 2026, wherein 29 Foreign Direct Investment (FDI) proposals worth approximately ₹4,895 crore had already been received. These proposals cover the sectors of artificial intelligence, data centers, and transport. Although there has been an inflow of investments in various sectors, the fixed ownership percentage may not always reflect the extent of influence that an investor holds, as these sectors do not present the same concerns.
III. SHAREHOLDING PERCENTAGE AND ACTUAL INFLUENCE
Corporate control is not always determined by shareholding percentage; a minority investor can obtain significant rights while not owning a major stake in the investment.
For example, an investor holding 10% may have a right to nominate a director, a veto right, or any other provision that provides for their consent to be obtained before any change is made to a business operation.
This becomes important to distinguish in sectors where access to information may create strategic concerns. A minority investment in an ordinary consumer business can’t be put in the same bracket as a minority investment in a company dealing with sensitive data;
this goes on to show that ownership percentage is only one of many indicators of influence.
Hence, a purely percentage-based test can allow further structuring, but it cannot be used as a sole metric to examine influence in an investment.
In cases of cross-border M&A, regulatory analysis falls short if it is only dependent on a cap table, with other parameters like board rights, reserved matters, and shareholders’ agreement also playing a prominent role.
IV. BENEFICIAL OWNERSHIP AND STRATEGIC CONCERNS
The question of beneficial ownership arises in the process as transactions may appear to involve a foreign shareholding while the economic interest ultimately rests with another entity.
The 2026 relaxation should not be understood as removing India’s ability to scrutinise foreign influence, but more as simplifying entry for minority investments.
However, questions around ownership and control still arise. As discussed in the previous section, the same 10% investment can have varied implications depending on the nature of the business and the underlying rights that are attached to it. The Government’s decision on disclosure of proposals involving data centres, manufacturing and pharmaceuticals illustrates why this distinction matters.
The said threshold set by the government can provide certainty, but it may not address every situation where a minority investor has influence over an Indian company.
The framework would need to consider both economic ownership and the rights attached; this allows for the percentage threshold to remain useful while acknowledging that influence may arise through other arrangements.
V. INTERNATIONAL DIMENSION
India’s approach reflects a wider international shift towards examining foreign investment through the lens of national security;
this can be seen with the approach taken by the European Union (EU),
which strengthened its foreign investment screening framework in 2026.
The strengthening included wider coverage of investments involving foreign-controlled entities and sectors that came under critical technologies and financial services;
this was followed by the United Kingdom continuing to review transactions under its National Security and Investment Act.
Both these frameworks show that ownership percentage is not necessarily a complete measure of risk;
for a screening to be considered ideal, various factors like the identity of the investor,
potential impact of the investment, and nature of the target business need to be taken into consideration.
With this being said, it would not be prudent for India to adopt
the same model as the EU or the United Kingdom,
but the Indian framework should not overlook forms of influence exercised without majority ownership.
VI. IMPLICATIONS FOR CROSS-BORDER TRANSACTIONS
Firstly, the change is going to affect legal professionals involved in structuring foreign investments into India. A transaction falling below 10% may appear simple at the term-sheet stage;
however, the parties still need to consider whether the investor is non-controlling
and whether the rights granted are consistent with the regulatory framework.
Secondly, this will result in transaction documentation taking more time to be reviewed and eventually processed. Provisions dealing with veto rights, reserved matters, and information
access may require a closer look when the investor is from a land-bordering country.
Thirdly, negotiations between investors and Indian companies are going
to be affected given that every provision holds a different regulatory significance.
A provision in regard to board seat or veto rights that are commonly negotiated
Minority investments may need to be considered alongside the foreign investment framework.
These implications may over time reduce regulatory friction for genuine minority investments while laying more emphasis on transaction structuring. This will also ensure that investors are thorough with their screening and make the same comprehensive to maximise profitability.
VII. CONCLUSION
The relaxation makes way for greater certainty for genuine minority investments,
but the 10% threshold cannot by itself determine whether an investment is truly non-controlling, as argued in this piece. The rights attached to the investment, attached to the identity of the investor, remain equally relevant.
Therefore, the threshold should function as a starting point rather than the lone measure of influence. As foreign investment expands into technology and other strategic sectors,
the effectiveness of the revised framework will depend on
whether it can provide ease of investment without overlooking the influence arising through ownership, contractual rights and transaction structures.
References
1. Department for Promotion of Industry and Internal Trade, ‘
Review of Foreign Direct Investment (FDI) Policy on Transfer of Indian Companies’
(Press Note No 3 (2020 Series), 17 April 2020) https://www.dpiit.gov.in/static/uploads/2025/07/c7586a2dee61bf88f73512a46d8a9ab1.pdf.
2. Press Information Bureau, ‘29 FDI Investments Worth ₹4,895.65 Crore Reported Under Revised Framework’ (21 August 2026) https://www.pib.gov.in/PressReleasePage.aspx?PRID=2301992&lang=1®=48.
3. Council of the European Union, ‘Foreign Investment Screening: Council Signs Off on Updated Framework’ (8 June 2026) https://www.consilium.europa.eu/en/press/press-releases/2026/06/08/foreign-investment-screening-council-signs-off-on-updated-framework/.
4. National Security and Investment Act 2021 (UK) https://www.legislation.gov.uk/ukpga/2021/25/contents.
