New Delhi: The Government is considering further simplification of foreign direct investment (FDI) procedures to make it easier for overseas companies with minority shareholding from countries sharing land borders with India, including China, to invest in Indian businesses without facing unnecessary regulatory hurdles, sources said.
The proposed changes would streamline the application process under Press Note 2, which was introduced in March to relax restrictions imposed under Press Note 3 of 2020.
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"The government is working to simplify the Press Note 2 application process. It is planning to remove procedural hurdles which can be approved without government permission," a source said.
The move signals a further attempt to balance India's investment requirements with national security considerations, particularly as the government seeks to attract foreign capital while strengthening domestic manufacturing.
Under the earlier Press Note 3 framework, foreign companies with even a single shareholder from a country sharing a land border with India were required to obtain prior government approval before investing in Indian entities, irrespective of the size of that shareholding.
The restrictions primarily affected investments linked to China and other neighbouring countries.
In March, the government relaxed these rules, allowing overseas companies with up to 10 percent shareholding from such countries to invest in India without prior government approval, subject to applicable conditions.
However, sector-specific FDI caps, entry routes and other regulatory requirements continue to apply. Eligible investments are also subject to prior reporting of relevant details to the Department for Promotion of Industry and Internal Trade (DPIIT).
The latest proposal seeks to eliminate procedural bottlenecks that may continue to delay investments despite the relaxation.
The key question is whether the simplified framework will materially reduce compliance costs and approval-related delays for investors while retaining safeguards against investments that warrant closer scrutiny.
Alongside the proposed FDI reforms, the government is advancing an import-substitution initiative aimed at strengthening domestic manufacturing capabilities.
A senior government official said DPIIT has finalised a list of 100 products targeted for complete localisation of production.
Inter-ministerial consultations have already been completed, and discussions are underway with the departments concerned to prepare product-specific implementation plans.
"Inter-ministerial consultation has already taken place on the matter. Now, discussions are on with respective departments to decide on an action plan," the source said.
However, details of the identified products, localisation timelines and proposed policy incentives have not yet been disclosed.
The effectiveness of the initiative will depend on whether domestic manufacturers can develop competitive production capacities, secure necessary technologies and establish reliable supply chains.
The government is also accelerating the implementation of the Rs 10,000-crore Startup India Fund of Funds 2.0, designed to expand capital availability for emerging businesses.
According to a source, Rs 270 crore has already been approved for Alternative Investment Funds (AIFs), with the Small Industries Development Bank of India (SIDBI) providing funding to 15 AIFs from the approved corpus.
"We have approved Rs 270 crore for AIFs. SIDBI has already funded 15 AIFs from that corpus," the source said.
SIDBI has been designated as the implementing agency for the fund.
Unlike direct government financing, the scheme operates through SEBI-registered Category I and Category II AIFs, which subsequently invest in startups through equity and equity-linked instruments.
This structure is intended to leverage professional fund management and private investment expertise to channel capital into promising enterprises.
Taken together, the three initiatives point to a broader government strategy of easing foreign investment procedures, reducing dependence on imported products and improving financing access for domestic startups.
However, their success will ultimately depend on execution.
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While simplifying Press Note 2 could improve investment flows, the government will need to ensure that regulatory clarity translates into faster investment decisions. Similarly, the localisation programme will require measurable production targets, while the startup fund's effectiveness will be judged by how much capital ultimately reaches businesses rather than merely being committed to intermediary funds.
For industry, the critical test will be whether these policy changes deliver tangible improvements in investment, manufacturing capacity and access to growth capital.
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