India drafts unified foreign investment code for equity instruments
The Reserve Bank of India has proposed a consolidated regulatory framework for foreign equity investments to streamline cross-border compliance and clarify overseas listing rules.
The Reserve Bank of India published draft norms on Tuesday to establish a unified code for foreign investment in equity instruments. The proposed Foreign Exchange Management (Foreign Investment) Rules, 2026, will replace the existing 2019 Non-Debt Instruments framework.
This consolidation aims to reduce regulatory friction for cross-border capital flows. The RBI will administer the new rules, while the Department for Promotion of Industry and Internal Trade retains authority over interpreting foreign investment policy provisions.
The draft maintains the traditional threshold separating foreign direct investment from foreign portfolio investment. Equity holdings of 10 percent or more in a company or limited liability partnership will be classified as FDI, with anything below that treated as FPI.
Investors whose portfolio holdings cross the 10 percent mark can apply to reclassify their stakes as FDI, subject to regulatory conditions. The rules also formalize definitions for foreign-controlled entities, specifying that control includes the ability to appoint a majority of directors or influence policy through agreements conferring at least 10 percent of voting rights.
Foreign capital can enter through subscriptions, purchases, gifts, pledges, depository receipts and share swaps. For unlisted entities, transaction pricing must follow internationally accepted arm’s-length valuation methodologies certified by a chartered accountant, merchant banker or cost accountant, while listed entities remain bound by Securities and Exchange Board of India regulations.
A key addition to the framework is the codified pathway for direct listings of Indian companies on overseas stock exchanges. However, the RBI will bar such listings if the company, its promoters or directors are wilful defaulters, fugitive economic offenders or currently under investigation under the Companies Act.
By clarifying the treatment of indirect investments and special rupee vostro accounts, the central bank is signaling a push for greater market transparency. International investors and domestic companies will now have a single reference point for equity entry routes, sectoral caps and pricing norms.
