RBI proposes new foreign investment rules: Here's what changes and what doesn't

The Reserve Bank on Tuesday proposed a major overhaul of the regulatory framework governing foreign investment into India, replacing the existing rules with a new set of Foreign Exchange Management (Foreign Investment) Rules, 2026.

Foreign investment into India is presently governed by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 ('NDI Rules').

The move follows Finance Minister Nirmala Sitharaman's announcement in the 2026-27 Union Budget of a comprehensive review of the foreign investment regime to make it more contemporary and investor-friendly.

"The Union Budget 2026-27 announced a comprehensive review of the NDI Rules to create a more contemporary, user-friendly framework for foreign investments, consistent with India's evolving economic priorities," the RBI said.

Pursuant to the announcement, the Centre constituted a committee to undertake a comprehensive review of the extant regulatory framework.

Based on the recommendations of the Committee, and in consultation with the central government and other stakeholders, the Reserve Bank of India (RBI) said it has prepared a draft of the rationalised rules.

Why is govt changing the rules?

According to the RBI, the proposed rules will simplify regulations, reduce compliance burdens and make the framework more adaptable.

The proposed framework is also designed to be "principle-based, investee-neutral and investor-neutral", making it adaptable to evolving business practices, the central bank said.

One of the most notable structural changes is the separation of procedural foreign exchange management provisions from the government's FDI policy, which prescribes sectoral caps, entry routes and sector-specific conditions.

Instead of incorporating those provisions directly into the rules, the draft places the government's foreign investment policy as a separate annexure.

The RBI said this would improve regulatory coherence and allow policy changes to be implemented more quickly without frequent amendments to FEMA rules.

Will foreign investment limits change?

No. The draft does not change sectoral caps or the sectors where foreign investment is allowed or prohibited.

Those rules will continue to be governed by the government's Foreign Direct Investment (FDI) policy, which has now been placed in a separate annexure to make future policy changes easier without rewriting the entire FEMA rules.

For example, if the government later decides to increase or reduce the foreign investment limit in a sector such as insurance or defence, it can amend the FDI policy without making changes throughout the FEMA rules.

How can foreigners invest under the new draft?

The draft consolidates the various ways foreign investors can acquire equity in Indian entities, including subscription to fresh issues, purchases from existing shareholders, gifts, pledges and investments through depository receipts.

It also explicitly allows non-resident Indians (NRIs) and Overseas Citizens of India (OCIs) to subscribe to the National Pension System (NPS), with accumulated savings and annuity being repatriable, subject to eligibility under the Pension Fund Regulatory and Development Authority (PFRDA) Act.

What happens if foreign investors buy large stakes?

The draft retains the existing distinction between portfolio investment and direct investment.

If a foreign portfolio investor acquires 10% or more of a company's equity on an Indian stock exchange, the investment can be reclassified as FDI after complying with the applicable FDI conditions issued by the RBI and the Securities and Exchange Board of India (SEBI).

What about gifting shares?

The proposal clarifies the conditions under which foreign investors can receive shares as gifts.

Where shares held on a non-repatriation basis are gifted on a repatriation basis, the transfer can happen only between close relatives as defined under the Companies Act, and the value must remain within the limits prescribed under the Liberalised Remittance Scheme.

What about companies listing overseas?

The draft also incorporates a detailed framework governing direct overseas listing of Indian public companies, including eligibility criteria, pricing norms, foreign investment conditions, transfer rules and voting rights for investors.

Companies seeking overseas listing would have to satisfy conditions including that promoters or directors are not debarred by regulators, are not wilful defaulters or fugitive economic offenders, and that the company is not under inspection or investigation under the Companies Act.

The proposal also requires that foreign beneficial owners of shares listed overseas should not be Indian residents.

“However, the beneficial owner of a broker dealer or an investment banker authorised or registered with the concerned regulator of an international stock exchange can be a person resident in India, where, such broker dealer or investment banker may buy or sell or hold equity only on behalf of its constituents,” the draft says.

Who will be responsible for compliance?

The draft makes it clear that responsibility for complying with the rules will rest jointly with the foreign investor, the Indian company receiving the investment, and, where applicable, the transferor and transferee.

What’s next?

The RBI has sought comments from industry, investors and other stakeholders until August 31, 2026.

After examining the feedback, the government is expected to notify the final Foreign Exchange Management (Foreign Investment) Rules, 2026, which will replace the current Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.