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RBI Unveils Draft Rules to Streamline Foreign Investment in India
The Reserve Bank of India (RBI) released a draft set of rules on Tuesday aimed at simplifying the country’s foreign investment framework and aligning it with the government’s foreign direct investment (FDI) policy. The draft, which is open for public comment until 31 August, follows the Budget 2026‑27 call for a review of the Foreign Exchange Management Act’s (FEMA) non‑debt instrument (NDI) rules.
The most significant change in the draft is a clear separation of the government’s FDI policy from FEMA’s operational provisions. Under the new framework, procedural matters such as payment methods and reporting will remain under FEMA, while sectoral caps and entry routes will be governed by the FDI policy. The RBI will issue regulations and circulars to cover operational aspects, whereas the Department for Promotion of Industry and Internal Trade (DPIIT) will retain responsibility for interpreting the policy.
The draft builds on steps taken last month when the RBI and the finance ministry expanded the portfolio investment scheme (PIS) to individuals resident outside India (PROIs). The new scheme increases the individual investment cap from 5 % to 10 % of a company’s paid‑up capital and raises the aggregate limit for all PROIs from 10 % to 24 %. The Department of Economic Affairs has notified the Foreign Exchange Management (Non‑Debt Instruments) (Third Amendment) Rules, 2026, to operationalise these changes.
In addition to companies and limited liability partnerships, the draft explicitly includes a range of investment vehicles regulated by the Securities and Exchange Board of India (SEBI). These include real‑estate investment trusts (REITs), infrastructure investment trusts (InvITs), alternative investment funds (AIFs), venture‑capital funds, mutual funds, exchange‑traded funds (ETFs), partnership firms and proprietary concerns registered under applicable domestic laws.
The draft also consolidates the various permissible modes through which a resident outside India or a foreign‑controlled entity may invest in or acquire equity. These modes cover subscriptions to an issue, purchases, pledges, depository receipts, investments by non‑resident Indians (NRIs) and overseas citizens of India (OCIs) in the National Pension System, and foreign investment through international stock exchanges, subject to conditions.
Common conditions for foreign investment are laid out in the draft. For listed companies, pricing will follow SEBI regulations. For companies listed on international exchanges, pricing will follow the norms specified in the rules. All other transactions will be based on an internationally accepted arm’s‑length valuation methodology certified by a chartered accountant, merchant banker or cost accountant.
The RBI said the new framework would provide a clear demarcation of procedural FEMA provisions from policy and sector‑specific requirements, improving regulatory coherence and facilitating timely policy changes. The finance ministry added that the draft will leverage existing onboarding systems for NRI and OCI investors, reduce compliance requirements and attract a broader pool of relatively stable foreign retail investors.
The draft rules are part of a broader effort to modernise India’s foreign investment framework. The RBI’s announcement comes after the government’s 2026‑27 budget highlighted the need to review NDI rules and streamline investment procedures. By separating policy from operational details, the RBI aims to make it easier for foreign investors to do business in India while maintaining the country’s regulatory oversight.
Stakeholders, including industry associations, investment firms and foreign investors, are invited to submit comments on the draft until 31 August. The RBI will review the feedback before finalising the rules.
The draft is expected to be a key step in India’s ongoing effort to attract foreign capital. It will also align India’s investment regime with international best practices, potentially enhancing the country’s appeal as a destination for foreign direct and portfolio investment.
The current situation remains that the draft rules are under review. No final decision has been announced, and the RBI has not yet indicated a timeline for implementation. Investors and firms will need to monitor the RBI’s website for updates and any subsequent notifications.
The most significant change in the draft is a clear separation of the government’s FDI policy from FEMA’s operational provisions. Under the new framework, procedural matters such as payment methods and reporting will remain under FEMA, while sectoral caps and entry routes will be governed by the FDI policy. The RBI will issue regulations and circulars to cover operational aspects, whereas the Department for Promotion of Industry and Internal Trade (DPIIT) will retain responsibility for interpreting the policy.
The draft builds on steps taken last month when the RBI and the finance ministry expanded the portfolio investment scheme (PIS) to individuals resident outside India (PROIs). The new scheme increases the individual investment cap from 5 % to 10 % of a company’s paid‑up capital and raises the aggregate limit for all PROIs from 10 % to 24 %. The Department of Economic Affairs has notified the Foreign Exchange Management (Non‑Debt Instruments) (Third Amendment) Rules, 2026, to operationalise these changes.
In addition to companies and limited liability partnerships, the draft explicitly includes a range of investment vehicles regulated by the Securities and Exchange Board of India (SEBI). These include real‑estate investment trusts (REITs), infrastructure investment trusts (InvITs), alternative investment funds (AIFs), venture‑capital funds, mutual funds, exchange‑traded funds (ETFs), partnership firms and proprietary concerns registered under applicable domestic laws.
The draft also consolidates the various permissible modes through which a resident outside India or a foreign‑controlled entity may invest in or acquire equity. These modes cover subscriptions to an issue, purchases, pledges, depository receipts, investments by non‑resident Indians (NRIs) and overseas citizens of India (OCIs) in the National Pension System, and foreign investment through international stock exchanges, subject to conditions.
Common conditions for foreign investment are laid out in the draft. For listed companies, pricing will follow SEBI regulations. For companies listed on international exchanges, pricing will follow the norms specified in the rules. All other transactions will be based on an internationally accepted arm’s‑length valuation methodology certified by a chartered accountant, merchant banker or cost accountant.
The RBI said the new framework would provide a clear demarcation of procedural FEMA provisions from policy and sector‑specific requirements, improving regulatory coherence and facilitating timely policy changes. The finance ministry added that the draft will leverage existing onboarding systems for NRI and OCI investors, reduce compliance requirements and attract a broader pool of relatively stable foreign retail investors.
The draft rules are part of a broader effort to modernise India’s foreign investment framework. The RBI’s announcement comes after the government’s 2026‑27 budget highlighted the need to review NDI rules and streamline investment procedures. By separating policy from operational details, the RBI aims to make it easier for foreign investors to do business in India while maintaining the country’s regulatory oversight.
Stakeholders, including industry associations, investment firms and foreign investors, are invited to submit comments on the draft until 31 August. The RBI will review the feedback before finalising the rules.
The draft is expected to be a key step in India’s ongoing effort to attract foreign capital. It will also align India’s investment regime with international best practices, potentially enhancing the country’s appeal as a destination for foreign direct and portfolio investment.
The current situation remains that the draft rules are under review. No final decision has been announced, and the RBI has not yet indicated a timeline for implementation. Investors and firms will need to monitor the RBI’s website for updates and any subsequent notifications.
