About Press Note 3
Press Note 3 (PN3) was introduced by the Government of India on 17 April 2020 as an emergency measure to prevent opportunistic takeovers of Indian companies amid the COVID-19 economic slowdown.
It mandated prior government approval for any investment from an entity of, or beneficially owned in, a country sharing a land border with India — covering China, Pakistan, Bangladesh, Myanmar, Nepal, Bhutan and Afghanistan — though aimed primarily at Chinese investment.
Challenges Under the 2020 Rules
- No Material Threshold: Even a tiny passive Chinese shareholding in a global fund could trigger mandatory approval.
- Long Timelines: Inter-ministerial security screening by the Ministry of Home Affairs often kept proposals pending for 6 to 18 months or longer.
- Funding Bottlenecks: Restricted venture capital/private equity funds with minor Chinese limited partners, constraining startup funding.
The 2026 Overhaul — Press Note 2 of 2026
- Notified: 15 March 2026, aligned with FEMA Rules amendments effective 1 May 2026.
- 10% Threshold: Land-border-country investors can use the automatic route if beneficial ownership is below 10% with no controlling rights, aligned with PMLA ownership tests.
- Sectoral Relief: Limited to capital goods, electronic capital goods, electronic components, and solar manufacturing inputs (polysilicon, ingot-wafers).
- Sectors Still Blocked: Semiconductors, defence manufacturing, telecommunications and critical infrastructure remain under prior-approval scrutiny.
- Domestic Control: Majority ownership and management control must remain with resident Indian entities.
- Approval Timeline: A firm 60-day deadline for proposals still requiring government clearance.
- Reporting: Sub-10% investments must still be reported to the Department for Promotion of Industry and Internal Trade (DPIIT).
Conclusion
Press Note 3 (2020) tightened FDI rules to prevent opportunistic takeovers by entities from countries sharing a land border with India. Press Note 2 of 2026 eases these rules for small, non-controlling investments in select manufacturing sectors while retaining stricter checks for sensitive sectors like defence and semiconductors.
| This concept has been elaborately discussed in the following article – Easing FDI Norms for Land-Border Country Investment |