Mumbai: In order to reduce the compliance burden and make it easier for foreign investors to do business in India, the Reserve Bank of India (RBI) on Tuesday released draft rules to simplify the country’s foreign investment regulations and align them with the government’s foreign direct investment (FDI) policy.
The rules, open for public comment till 31 August, follow the Budget 2026-27 call for a review of non-debt instruments (NDI) rules to modernize India's foreign investment framework, RBI said.
One of the biggest changes proposed is a clear separation of the government’s FDI policy from the Foreign Exchange Management Act’s (Fema) operational provisions.
Under the draft, procedural provisions stay under Fema, while sectoral caps and entry routes move to the government's FDI policy. RBI will govern operational matters, such as payment modes and reporting, through regulations and circulars.
The changes build on steps taken last month, when RBI and the finance ministry expanded a portfolio investment scheme (PIS) to individuals resident outside India, increasing the investment cap for an individual Persons Resident Outside India (PROI) under the scheme to 10% of a company's paid-up capital from the existing 5%, while the aggregate limit for all such investors has been raised to 24% from 10%. To operationalise the changes, the department of economic affairs had notified the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026.
RBI will administer the rules, while interpretation of the foreign investment policy will remain with the department for promotion of industry and internal trade (DPIIT). RBI said the move would provide a clear demarcation of procedural Fema provisions from policy and sector-specific requirements, improving regulatory coherence and facilitating timely policy changes.
The draft also broadens the scope of eligible investee entities. Apart from companies and limited liability partnerships (LLPs), it explicitly includes Securities and Exchange Board of India-regulated investment vehicles such as Real Estate Investment Trusts (Reits), Infrastructure Investment Trusts (InvITs), Alternative Investment Funds (AIFs), venture capital funds, mutual funds, Exchange Traded Funds (ETFs), partnership firms and proprietary concerns registered under applicable domestic laws.
The draft further consolidates the various permissible modes through which a resident outside India or a foreign-controlled entity may invest in or acquire equity. These include subscriptions to an issue, purchases, pledges, depository receipts, investments by non-resident (NRIs) and Overseas Citizens of India (OCIs) in the National Pension System, and foreign investment through international stock exchanges, subject to conditions.
The proposed framework also lays down common conditions applicable to foreign investments.
For listed companies, pricing will follow Sebi regulations, and for companies listed on international exchanges, it will follow the pricing norms specified in the rules, while all other transactions will be based on an internationally accepted arm’s-length valuation methodology certified by a chartered accountant, merchant banker or cost accountant.
The move will leverage existing onboarding systems for NRI and OCI investors, reduce compliance requirements and attract a broader pool of relatively stable foreign retail investors, according to the finance ministry.
Subhana Shaikh is a business journalist at Mint, where she covers the Reserve Bank of India, monetary policy, and India’s bond markets. She has seven years of experience in reporting on financial markets, with a focus on banking and the broader financial system.<br><br>She began her career after completing her postgraduate diploma at the Indian Institute of Journalism and New Media, Bengaluru. She then spent five years at Informist Media, a news wire agency, where she closely tracked bond markets and the BFSI sector, developing a strong foundation in market reporting. She later moved to NDTV Profit, where she expanded her coverage across a wide range of business and economic stories.<br><br>At Mint, Subhana focuses on explaining central bank decisions, bond market movements, and banking trends for her readers. Her reporting combines on-ground inputs with careful analysis to help audiences understand complex financial developments.<br><br>Based in Mumbai, she is interested in exploring stories across the business landscape. Outside of work, she enjoys reading and spending time with her three cats.
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