India Eases Foreign Investment Rules to Attract Capital

India has officially relaxed its foreign investment regulations, broadening the portfolio investment scheme to encompass a wider range of foreign individuals and entities. This move, effective immediately, aims to attract much-needed capital into the country and bolster the weakening rupee.

The amended rules under the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026, now allow 'persons resident outside India' (PROIs) to invest through the portfolio investment scheme, which was previously restricted to non-resident Indians and overseas citizens of India. This decision is part of a series of measures announced by the government to counteract capital outflows.

Under the new regulations, an individual PROI can now hold up to 10% of the total paid-up equity capital of a listed Indian company. Furthermore, the combined holding limit for all such individuals in a single company has been raised to 24% from the previous 10%. Any individual PROI investment exceeding the 10% threshold must be divested within five trading days of the breach. Failure to divest will result in the excess investment being classified as foreign direct investment (FDI), preventing further portfolio investments by that individual in the same company.

Additionally, prior government approval will be necessary if a PROI investment leads to a transfer of ownership or control of a listed company to entities or citizens of countries that share a land border with India, or if the beneficial owner of the investment is a citizen of such a nation. This aligns with the government's existing foreign direct investment policy. Mayank Arora, an associate partner at Nangia Global, noted that the policy appears designed to encourage both FDI and FPI at a time of capital flight.