Press Note 3 2026 Explained: FDI Easing for India Manufacturing | A2

By Nagavarapu Sudheer, M.Com., F.C.S., L.L.B., Partner, A2 Consultants

In March 2026 India eased long-standing restrictions on foreign direct investment from countries sharing a land border with it, the regime introduced by Press Note 3 in 2020. For global manufacturers, particularly in electronics and capital goods, and for those with shareholders or supply chains linked to those countries, the change affects structuring, timing and risk. Here is what it does, what it does not do, and what to review before you file.

What changed in 2026

AccordingIndia summary of the government decision, two changes stand out:

• A 10% threshold. Investments from land-bordering-country investors can proceed automatically where they hold up to 10% non-controlling ownership in the investing entity. Pending applications within this threshold are expected to move to the automatic route once the notification takes effect.

• A 60-day fast track. An expedited approval timeline applies to specified manufacturing sectors: capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer manufacturing. A committee of secretaries may expand or reduce the list.

Other restrictions on controlling stakes and strategic investments from land-bordering countries remain in place. This is an easing, not a repeal.

Who is affected?

Manufacturers with minority investors from land-border countries

If your global cap table includes a minority shareholder from an affected country, a stake of up to 10% that is non-controlling may no longer force a government approval for your India investment. You still need to document beneficial ownership carefully; the test applies to the investing entity and its ownership chain.

Joint ventures and technology partnerships

Electronics and components makers often partner with suppliers or financial investors from the region. The fast-track route can shorten timelines for eligible sectors, but a JV in which an affected-country party has control or strategic influence remains a case-by-case approval matter.

Everyone else

Manufacturers with no connection to land-border countries are unaffected by the approval rules, but may benefit indirectly as suppliers and contract manufacturers expand capacity to serve the electronics sector.

Beyond the approval: manufacturing entry compliance

FDI approval is only the first gate. A foreign manufacturer entering India should plan for the following, usually in parallel:

• Entity choice and FEMA filings: a private limited subsidiary is the usual vehicle; inward remittance and share issuance reporting to the RBI must be timely.

• Land, factory and state approvals: state industrial policies, pollution-control consents, fire and factory licences and building approvals vary and often set the critical path.

• Indirect tax and customs: GST registration, import duty planning for machinery and components, and any bonded or export-oriented arrangements.

• Labour compliance: India's new labour codes change obligations on wages, social security and industrial relations, and state-level rule notification has varied.

• Incentives: production-linked and state incentives are conditional and time-bound; confirm eligibility before signing land or equipment contracts.

• Transfer pricing: intercompany pricing of components, royalties and technical fees should be documented from the first shipment.

Timing also matters commercially. Equipment orders, lease negotiations and customer commitments are often made well before regulatory sign-off, so the question is not only whether you qualify but when you can safely commit capital. Build conditions precedent into land, equipment and JV agreements so that you are protected if approvals take longer than planned.

Five questions to ask before you file

• Does any shareholder in our ownership chain come from a land-bordering country, and at what percentage?

• Does our product fall within the 60-day fast-track sectors?

• Is any minority investor able to exercise control through rights, board seats or veto powers?

• Has our timeline accounted for state approvals, not just central FDI approval?

• Are our FEMA pricing and reporting obligations mapped for the first twelve months?

A practical sequence for an eligible manufacturer

Where your project falls inside the fast-track sectors and the ownership position is clean, we typically recommend working in four overlapping phases rather than one long queue. First, map your full ownership chain to the ultimate beneficial owners and confirm each holder's country, percentage and rights. Second, decide the entity, capitalisation and investment route, and prepare FEMA pricing support for the share issue. Third, run state-level work in parallel: site shortlisting, utilities, environmental and factory approvals, and incentive discussions. Fourth, prepare the compliance foundation, including GST and customs registrations, payroll and labour registrations, and intercompany agreements, so that operations can start the day equipment clears.

Common mistakes manufacturers make

• Assuming the 10% test is applied only to the immediate investor. Look through the chain and document it.

• Treating the 60-day window as a guarantee. It is a target timeline for specified sectors; incomplete applications reset expectations.

• Locking in land before approvals are clear. Commercial commitments made ahead of regulatory certainty reduce your negotiating leverage.

• Ignoring supplier-side exposure. If a key component supplier or JV partner is from an affected country, their stake and your control rights may need separate analysis.

Our view

The 2026 easing lowers friction for a defined group of manufacturers and investors, and it arrives while India's overall FDI inflows continue to grow; India Briefing reports US$58.85 billion in FY 2025-26, up 18% on the previous year. But the savings in time are only real if your structure is clean on day one. Ownership-chain mistakes discovered at the filing stage are the single most common reason approvals stall.

Talk to A2 Consultants

A2 Consultants helps foreign manufacturers test their ownership structure against the current FDI rules, choose the right entity and route, and plan compliance from approvals through the first production run.

Book a free 30-minute consultation with A2 Consultants at www.a2consultants.in or write to us through the contact page. We will review your plans and tell you, plainly, which structure and sequence fit your business.