RBI proposes easier FDI compliance regime, seeks public comments

Regulator proposes greater operational flexibility

The Reserve Bank of India (RBI) on Tuesday proposed a principle-based regulatory framework by rationalising provisions, harmonising definitions and simplifying the regulatory architecture to improve clarity and reduce the compliance burden for foreign investors. The central bank released the draft Foreign Exchange Management (Foreign Investment) Rules, 2026 for public consultation on Tuesday, seeking to replace the existing Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. Comments on the draft have been invited until August 31. 

RBI said the proposed norms are aimed at enhancing ease of doing business. “Streamlined procedures, reduced compliance burden and greater operational flexibility through a transparent and investor-friendly regulatory framework,” is among the salient features of the proposed draft rules, the RBI statement noted. 

The review of the Non-Debt Instruments (NDI) Rules was announced in the Union Budget for 2026-27 as part of the government’s plan to create a more contemporary and user-friendly framework for foreign investment. Following the announcement, the Centre constituted a committee to review the existing regulations, and based on the committee's recommendations, the RBI prepared the draft rules in consultation with the government and other stakeholders.

 

In her 2026-27 Budget speech, Finance Minister Nirmala Sitharaman had said, “I propose a comprehensive review of the Foreign Exchange Management (Non-debt Instruments) Rules to create a more contemporary, user-friendly framework for foreign investments, consistent with India’s evolving economic priorities.”

Among other important proposals in the RBI draft is the clear demarcation of procedural provisions under FEMA from policy and sector-specific requirements contained in the government’s FDI policy. The RBI said the change would improve regulatory coherence and facilitate timely policy changes.

 

The draft norms specified conditions under which a public company will be allowed to issue fresh equity shares or allow existing stakeholders to offer shares on international stock exchanges. Turn to Page 6 >

 

Some of the eligibility criteria include promoter or directors not debarred from accessing the capital market or they are not a wilful defaulter or fugitive economic offender among others.

 

“If such company is listed on a recognised stock exchange in India, then issue or offer of equity shall additionally be in compliance with the applicable SEBI regulations and such equity shall rank pari passu with equity listed on a recognised stock exchange in India,” the draft norms said. In case, such a company is not listed on a recognised stock exchange in India, then issue or offer of equity should be in compliance with the conditions or requirements prescribed by the Ministry of Corporate Affairs from time to time.

 

Furthermore, in case of initial listing of equity by a public company which is not listed on a recognised stock exchange in India, the price for issue or transfer of equity shall be determined by a book-building process as permitted by the concerned international stock exchange, the norms said.

 

A key aspect of the draft is the proposed introduction of definitions for FDI and portfolio investment. Under the current framework, investment below 10% in a listed Indian company is treated as portfolio, whereas investment beyond 10%, as well as any investment in an unlisted Indian company, is treated as FDI. The draft appears to move away from a distinction based purely on whether the Indian company is listed or unlisted. Therefore, if investment below 10% in an unlisted Indian company is to be treated as portfolio, clarity may be needed on whether FDI-linked sectoral conditions, restrictions and reporting requirements would continue to apply,” Sunil Kumar, Partner, EY said.

 

“The draft also proposes to broaden the framework for investments on a non-repatriation basis to all non-residents. At present, such investments are available only to NRIs/OCIs. he said.

 

“Further, the proposed relaxation in gift provisions appears to be facilitative. Currently, a gift of shares of an Indian company to a non-resident family member is subject to RBI approval and monetary limits (USD 50k). The draft provides for such gift of shares up to the Liberalised Remittance Scheme limit under the automatic route,” Kumar added.

 

The draft also said non-resident Indians (NRIs) or OCI may subscribe to the National Pension System provided such person is eligible to invest as per the provisions of the PFRDA Act. “The annuity/ accumulated saving will be repatriable,” it said.

 

The draft rules also seek to adopt investee-neutral and investor-neutral provisions, replacing prescriptive regulations with a framework that can accommodate evolving business practices while retaining necessary regulatory safeguards.

 

Moin Ladha, Partner at Khaitan & Co, said, the draft rules represent one of the most significant overhauls of India’s foreign investment framework since the introduction of the NDI Rules in 2019. At a broad level, the objective appears to be to consolidate the legal framework, simplify the drafting and align the Rules more closely with the FDI Policy and RBI’s operational directions, he said.

 

"However, the draft also introduces certain important conceptual changes. The proposed framework around ‘Foreign Controlled Entities’, the revised approach to determining ownership and control, and the treatment of indirect foreign investment and downstream investments could have a meaningful impact on how cross-border investment structures are analysed. Depending on how these provisions are ultimately worded, they may require businesses to revisit existing governance arrangements and investment structures," Ladha said.

 

The draft rules have simplified regulatory architecture and harmonised definitions, and are aligned with the FDI Policy, said experts. “One of the substantive changes include the explicit capture of indirect investment through foreign controlled entities ("FCE") within the primary definition of ‘foreign investment’. Another important change is simplification of the pricing guidelines mandating the pricing to be exactly at Fair Market Value (FMV) whereas - the Foreign Exchange Management (non-debt instrument) rules, 2019, provided flexibility in pricing the transfer from resident to non-resident at any price over the FMV and vice versa,” said Smruti Shah, Partner, Cyril Amarchand Mangaldas.

 

In relation to direct listing, there are 2 substantive changes, says Smruti Shah.

 

One is the removal of floor price for unlisted company's initial listings on international exchange, and second, the explicit ring-fencing of transfers from non-resident to resident of internationally listed equity shares - it is limited to only the following 5 events: Delisting offers, resolution plans, Buy-backs, mergers and amalgamations, or  acquisition of equity by transmission on succession or inheritance, says Shah.

 

However, Smrithi Nair, Partner, Juris Corp notes that while the direct listing framework is a useful enabling reform, it is unlikely to be widely used immediately.

 

“It will likely benefit larger Indian companies that have global investor interest and see commercial value in accessing international markets,” added Nair.

 

Going ahead, experts also suggest that the real gains will depend on how the final rules are drafted.

 

“One change worth watching is how the draft defines ‘control’ for the purpose of tracing indirect foreign investment routed through offshore structures. The definition now carries a 10 per cent voting-rights marker. A foreign investor holding close to 10 per cent will typically negotiate customary governance protections, such as a board seat or veto rights over a handful of reserved matters,” said Suresh Swamy, Partner, Price Waterhouse & Co LLP, adding that the final rules should clarify that a holding of around 10 per cent—whether on its own or coupled with such protective rights—does not by itself make the investor a person in-control.

 

Ladha adds that equally significant is the move towards a more principles-based drafting approach, with greater reliance on the FDI Policy and RBI directions for operational matters. While this has the potential to make the framework more agile, stakeholders are likely to seek additional clarity during the consultation process on provisions that could affect regulatory certainty, particularly for complex M&A transactions, private equity investments and joint ventures.