Press Note 3: the screening rule that catches investors by surprise
Investors from countries sharing a land border with India need government approval in every sector, regardless of the sectoral cap. It applies to beneficial ownership, not just the immediate investor.
Press Note 3 of 2020 changed the FDI route for investors from countries sharing a land border with India. Where the automatic route would otherwise apply, government approval becomes mandatory — in every sector, at any shareholding.
Why it surprises people
It is tested on beneficial ownership, not the immediate investor. A Singapore holding company with an ultimate parent in a land-border country falls within scope. Structures built purely to route around it invite scrutiny under GAAR and the treaty principal-purpose provisions.
Practical consequences
- Timelines extend materially — plan around government approval, do not assume automatic route.
- Downstream investments by an affected Indian entity inherit the restriction.
- Transfers of existing shareholding to an affected party also require approval.
The screening question should be answered before the term sheet, not at filing. Getting it wrong at FC-GPR stage means the investment is already made.