Insights

SUMMARY

In a welcome move, the DPIIT issued a revised Standard Operating Procedure for Processing Foreign Direct Investment Proposals in May 2026 (“SOP 2026”). The SOP 2026 operationalised the revised framework for investments from land border countries introduced by Press Note 2 of 2026 and provided clarity on the sectors that the government considers crucial to allow expedited approval process. Key features of SOP 2026 include: (i) a mandatory pre-remittance reporting mechanism for investments proceeding under the automatic route; (ii) an expedited 60-day approval process for minority investments (up to 49%) in Indian Owned and Controlled Companies engaged in specified manufacturing sectors; (iii) centralisation of inter-agency consultations on the NSWS Portal; (iv) extension of the deemed no-objection framework to MHA comments; (v) structured timelines for processing incomplete applications; and (vi) streamlined decision-making by dispensing with intermediate Secretary-level approvals for routine consultations. SOP 2026 supersedes the earlier Standard Operating Procedure dated 17 August 2023.

BACKGROUND

India’s foreign investment regime governing investments from countries sharing a land border with India (“LBCs”) [1] has undergone significant changes over the past few months. Press Note 3 of 2020 (“PN3”) brought all investments from LBCs under the Government approval route. Thereafter, on 10 March 2026, the Union Cabinet approved a series of relaxations to the PN3 framework [2] which were subsequently implemented through Press Note 2 of 2026 (“PN2”) issued on 15 March 2026 [3]. PN2, inter alia, (i) introduced an objective framework for determining “beneficial ownership”, and (ii) permitted investments not exceeding the prescribed beneficial ownership thresholds and not involving control to proceed under the automatic route, subject to a reporting requirement to be prescribed by the Department for Promotion of Industry and Internal Trade (“DPIIT”).

These substantive changes were subsequently operationalised through the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026, notified on 1 May 2026, followed by the issuance of the SOP 2026 by the DPIIT on 4 May 2026 [4], which supersedes the earlier Standard Operating Procedure dated 17 August 2023 (“SOP 2023”). While PN2 introduced the substantive policy changes, SOP 2026 lays down the procedural framework for their implementation, including the reporting mechanism for investments under the automatic route, the expedited approval process for specified sectors, and revised procedures and timelines for processing Foreign Direct Investment (“FDI”) proposals.

 GENERAL PROCEDURAL CHANGES

 CENTRALISED PLATFORM FOR INTER-AGENCY CLEARANCES

 SOP 2023 required comments from the Reserve Bank of India (“RBI”), the Ministry of Home Affairs (“MHA”) and the Ministry of External Affairs (“MEA”) to be sought during the processing of FDI proposals. SOP 2026 retains this consultation process but additionally provides that such comments and clearances are to be uploaded directly on the National Single Window System (“NSWS”) Portal, thereby centralising the exchange of inter-agency comments and clearances.

TIME-BOUND MHA CONSULTATION

The deemed no-objection framework under SOP 2023 applied to comments from the RBI and the MEA, but the MHA could seek additional time to furnish its comments by notifying the concerned Ministry/Department. SOP 2026 now extends the deemed no-objection framework to MHA comments as well. Accordingly, where comments are not received from the MHA within the prescribed timelines, they will be deemed to have no comments on the proposal, thereby aligning the consultation process for the MHA with that applicable to the RBI and the MEA.

TIME-BOUND PROCESS FOR INCOMPLETE APPLICATIONS

SOP 2026 introduces a structured timeline for processing applications requiring additional information or clarification. The Competent Authority [5] is required to scrutinise the application within one week of filing and, where necessary, seek additional information, documents or clarifications from the applicant. The applicant is initially afforded one week to respond. If the response is not received or is inadequate, the Competent Authority may issue a reminder granting a further seven days, followed by a final reminder providing an additional seven days before proceeding to close the application.

Importantly, the closure of an application does not amount to a rejection of the proposal. Instead, it is without prejudice to the applicant submitting a fresh application together with the requisite information and supporting documents.

 STREAMLINED DECISION-MAKING PROCESS

SOP 2023 required the Competent Authority to obtain the approval of the Secretary of the concerned Ministry/Department before seeking policy clarification from the DPIIT or consulting other Ministries/Departments during the processing of an FDI proposal. SOP 2026 dispenses with this intermediate approval requirement, enabling the Competent Authority to directly seek such consultations where required. However, Secretary-level approval continues to be necessary for decisions involving rejection of proposals, closure of applications on account of incompleteness, and issuance of corrigenda to approval letters.

BROADER SCOPE FOR CORRECTING APPROVAL LETTERS

The corrigendum mechanism under SOP 2023 was limited to the rectification of typographical or grammatical errors in approval letters. SOP 2026 broadens this mechanism by permitting the correction of any error that is “apparent from the records”. This provides greater flexibility in rectifying errors in approval letters without altering the substantive approval process. Secretary-level approval of the relevant Ministry/Department continues to be required before a corrigendum is issued.

REPORTING FRAMEWORK FOR AUTOMATIC ROUTE INVESTMENTS

SOP 2026 operationalises the reporting mechanism introduced under the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026 pursuant to PN2. Accordingly, even where an investment from an LBC is permitted under the automatic route because it does not exceed the prescribed beneficial ownership thresholds and does not involve control, the investment remains subject to a mandatory reporting requirement.

The reporting obligation rests with the Indian investee entity in the case of primary issuances and with the resident Indian transferor or transferee in the case of secondary transactions. The prescribed report is required to be filed electronically on the NSWS Portal prior to the inward remittance of foreign capital or, where no remittance is involved (such as share swap transactions), prior to execution of the transaction documents. 

Schedule I prescribes an extensive disclosure framework requiring, inter alia, details relating to the investor and investee, ownership and shareholding structures, beneficial ownership, governance and control rights (including director appointment and veto rights), board composition and downstream investments. These disclosures are intended to enable the DPIIT to verify that the investment satisfies the conditions for availing the automatic route and does not otherwise trigger the Government approval requirement.

EXPEDITED APPROVAL MECHANISM FOR SPECIFIED SECTORS

SOP 2026 operationalises the expedited approval framework contemplated under PN2 for specified investments from LBCs. Under this framework, LBC investments involving the acquisition of up to 49% of the capital or voting rights in an Indian Owned and Controlled Company (“IOCC”) engaged in specified manufacturing sectors are eligible for an expedited approval process, with the Competent Authority required to communicate its decision within 60 days from the date of filing of the application. The expedited framework is available only where the prescribed eligibility conditions continue to be satisfied, including that the investee remains an IOCC and that majority shareholding and control of the investee entity continues to remain with resident Indian citizens and/or resident Indian entities owned and controlled by resident Indian citizens.

The specified sectors presently include:

•      Capital goods manufacturing;

•      Electronic capital goods and electronic component manufacturing;

•      Polysilicon and ingot/wafer manufacturing;

•      Advanced battery components;

•      Rare earth permanent magnets (including those used in wind turbines);

•      Rare earth processing.

This expedited approval mechanism is expected to facilitate minority strategic investments and technology collaborations in sectors identified by the Government as being of strategic importance, while retaining Indian ownership and control over the investee entity.

 OUR ANALYSIS

SOP 2026 completes the transition initiated by the Union Cabinet and subsequently implemented through PN2 by providing the procedural framework for the revised LBC investment regime. While the SOP simplifies several aspects of the Government approval process and operationalises the automatic route for eligible minority investments, it also introduces structured reporting and disclosure requirements to ensure continued oversight of ownership and control structures. 

As a practical matter, authorities may seek evidence of compliance with these reporting requirements including for processing the inward remittances for the FDI. We note that the NSWS Portal is undergoing changes to implement SOP 2026; therefore, it remains to be seen what form of acknowledgement or confirmation will be provided for compliance with the reporting requirements to facilitate deal certainty and transaction closure.

Taken together, these developments reflect the Government’s attempt to facilitate foreign investments into strategically important sectors while maintaining appropriate regulatory safeguards.