Press Note 3 Amendment 2026: India Relaxes FDI Rules for Land-Border Countries

On March 10, 2026, the Government of India announced a significant amendment to Press Note 3 of 2020, the regulation that imposed mandatory government approval for foreign direct investment from countries sharing a land border with India. The 2026 amendment introduces a threshold-based relaxation: where the beneficial ownership from land-bordering countries is below 10 percent and the ownership is passive and non-controlling, the investment may proceed under the automatic route without prior government approval. This marks the first substantive relaxation of the PN3 framework since it was introduced in April 2020 as a response to concerns about opportunistic acquisitions during the COVID-19 economic downturn.

Background: What Press Note 3 of 2020 Requires

Press Note 3 of 2020 amended the Foreign Direct Investment Policy to require prior government approval for any FDI from an entity incorporated in, or whose beneficial owner is a citizen of, a country sharing a land border with India. The countries covered are China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, and Afghanistan. The requirement also applies to any transfer of ownership of existing or future FDI in an Indian entity that results in beneficial ownership falling within these countries. Prior to PN3, FDI from most of these countries (except Pakistan, which was already restricted) could be made under the automatic route in sectors where 100 percent FDI was permitted. The practical impact fell disproportionately on Chinese investment, which represented the largest volume of FDI from land-border countries. PN3 created significant delays for transactions involving even minority Chinese shareholding, including investments by global funds with Chinese limited partners.

The 2026 Amendment: 10 Percent Threshold

The March 2026 amendment introduces a de minimis threshold. Investments where the beneficial ownership from land-bordering countries is below 10 percent can now proceed through the automatic route, provided the ownership is passive and does not confer control over the Indian entity. This means that global investment funds with minority Chinese or other land-border country limited partners below the 10 percent threshold no longer need to seek government approval for each investment into India. The amendment does not change the government approval requirement for investments above the 10 percent threshold or for any investment that confers control, regardless of the ownership percentage. The distinction between passive and controlling ownership will be assessed based on the overall terms of the investment, including board representation, veto rights, and other governance arrangements.

Impact on Fund Structures and Deal Timelines

The amendment is expected to significantly benefit the venture capital and private equity ecosystem in India. Many global funds have limited partners from multiple jurisdictions, and even a small allocation from a Chinese LP previously triggered the full PN3 approval process, which could take several months. This created deal execution risk and made India a less attractive destination for time-sensitive investments. The 10 percent threshold provides a clear safe harbour for funds with minority land-border country exposure. Deal timelines for such investments should return to the standard automatic route processing period, which is typically a matter of days. However, fund managers must ensure that the passive and non-controlling conditions are met, which may require changes to LP agreements or side letters that confer any governance rights.

Practical Takeaways

Fund managers should review their LP base to determine whether their land-border country exposure falls below the 10 percent threshold. If it does, pending and future investments into India may qualify for the automatic route. Indian companies receiving FDI should update their beneficial ownership analysis to apply the new threshold. Legal counsel advising on cross-border M&A and investment transactions should incorporate the 2026 amendment into their PN3 compliance assessment. Companies that previously held back from accepting investment from funds with minority Chinese LP exposure now have a clear regulatory pathway. However, the government approval route remains fully in place for investments above 10 percent or where control is involved, and the broader geopolitical context means that PN3 scrutiny for significant Chinese investment is likely to continue.