India permits foreign direct investment (“FDI“) through two principal modes; the automatic route, where no governmental approval is required, and the government route, wherein governmental approval is mandatory. The distinction between these routes is based on several factors, including the sensitivity of the sector and national interest considerations. On May 4, 2026, the Government of India introduced significant reform in the processing of FDI proposals under the government route, through the issuance of a revised standard operating procedure (“SOP“) published by the Department for Promotion of Industry and Internal Trade (“DPIIT“). Through this change, the DPIIT seeks to modernize the approval mechanism for FDI requiring government approval by introducing, amongst other reforms, paperless filing mechanisms and time limits for approving FDI proposals. This SOP follows the partial relaxation of Press Note 3 of 2020 in March 2026, allowing for: (i) automatic approval for FDI from land-bordering countries (“LBCs“) if the investors have a non-controlling beneficial interest of up to 10% (ten percent) as per the applicable sectoral caps; and (ii) expedited clearance for investments in certain sectors and activities.
As per the SOP, all FDI proposals requiring government approval under the Consolidated FDI Policy 2020 and the Foreign Exchange Management (Non-debt Instruments) Rules 2019 are required to be submitted online through the Foreign Investment Facilitation (“FIF“) portal. The main changes introduced by the SOP are as follows:
Defined Approval Timelines
The SOP sets out a defined 12 (twelve) week timeline starting from the date of submission of the application to the FIF portal for the disposal of the FDI proposal. The SOP specifies that if comments are not received from the relevant ministries, departments, and/or the Reserve Bank of India (hereinafter collectively referred to as the “Concerned Authorities“, and individually as a “Concerned Authority“) within this prescribed timeline, it shall be presumed that the Concerned Authority has no comments to offer. Importantly, the 12 (twelve) week timeline herein excludes any time taken by the applicants to either provide clarifications or remove the deficiencies in the applications.
Under Annexure V of the SOP, the DPIIT has introduced defined action points to be completed by the Concerned Authorities, and the timelines associated with each such action point. An additional period of 2 (two) weeks shall be given to the DPIIT for consideration of FDI proposals wherein a Concerned Authority is proposing to reject the application or impose additional conditions.
Paperless Processing of FDI Applications
The SOP introduces a completely paperless FDI application process, wherein the applicant will not be required to file any physical copies of the applications, or the physical copies of documents required to process the same. Additionally, all Concerned Authorities would be required to submit their comments and/or clearances directly on the FIF portal, reducing administrative delays and increasing transparency in the processing of the applications. Under the SOP, all Concerned Authorities are directed to address any queries or requests for additional documentation through the FIF portal and, to the extent possible, raise all queries in the initial communication.
As set out in Annexure I to the SOP, the applicant would be required to upload all documents digitally signed by the authorized person. Such documentation would include, amongst others: (i) a letter of authorization by the applicant in favor of the person filing the application; (ii) the summary of the FDI proposal which shall include, amongst other details, a background of the investors and investees, existing and proposed business activity, details of beneficial ownership and the benefits arising from the proposal; (iii) a shareholding pattern of the investee; and (iv) diagrammatic representations of the flow of funds from the investor to the investee and the group structure of the entities; (v) beneficial ownership details; and (viii) details of past approvals.
Dedicated FDI Cells and Regular Review Meetings
The SOP requires each ministry and department to have a dedicated FDI cell with a nodal officer not below the rank of Joint Secretary. Furthermore, the Secretary of the DPIIT is required to conduct regular review meetings with the departments concerned and ministries every 4 (four) to 6 (six) weeks to review the pendency of FDI proposals. These measures would improve coordination amongst ministries and improve institutional accountability.
Scrutiny of Investments from LBCs
The SOP specifies that the onus of reporting FDI relating to an LBC shall be on the Indian investee or the resident Indian transferor/transferee, as the case may be. The reporting must be made prior to the inward remittance of foreign capital or, where there is no inward remittance, the reporting must be made prior to the execution of the relevant transactions., including issuance/transfer of capital instruments.
However, as a relaxation of the process, the SOP provides that if the LBC investor: (i) holds up to 49% (forty nine percent) of the capital or voting rights of an Indian investee company, whether individually or cumulatively, where such Indian investee company is engaged in the sectors specified under Schedule II of Annexure VII of the SOP; and (ii) the majority shareholding and control of the Indian investee entity is with a resident Indian entity or resident Indian citizen, or controlled by a resident Indian citizen, the decision on the FDI proposal shall be conveyed within a period of 60 (sixty) days from the date of filing the application. The sectors for which such expedited timeless are applicable are: (i) capital goods manufacturing; (ii) electronic capital goods and electronic component manufacturing; (iii) polysilicon and ingot wafers; (iv) advanced battery components; (v) rare earth permanent magnets; and (vi) rare earth processing.
The measures introduced under the revised SOP seek to collectively strengthen India’s position as a more attractive and efficient destination for FDI. The introduction of the defined timelines and a fully digital approval process is expected to enhance predictability and bolster investor confidence. Additionally, the establishment of the FDI cells coupled with the periodic monitoring by the DPIIT is likely to enhance accountability, coordination and transparency amongst the Concerned Authorities. At the same time, the increased documentation requirements and the enhanced beneficial ownership disclosures may increase compliance obligations, particularly for complex multinational investment structures. Although these reforms represent a significant step towards modernizing India’s FDI approval framework, their practical effectiveness and long term impact will ultimately depend on its implementation.
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