RBI aims to simplify foreign investment rules, seeks comments by 31 August

RBI aims to simplify foreign investment: BI Aims to Simplify Foreign Investment Framework Theindiapostdaily.com – Mumbai: The Reserve Bank of India

RBI Aims to Simplify Foreign Investment Framework

Theindiapostdaily.com – Mumbai: The Reserve Bank of India (RBI) has taken a significant step toward modernizing the nation’s investment landscape. In a move that RBI aims to simplify foreign investment regulations, the central bank released comprehensive draft rules on Tuesday. These new guidelines seek to reduce compliance burdens while making it easier for international investors to participate in India’s growing economy. The draft framework aligns closely with the government’s broader foreign direct investment (FDI) policy objectives.

The proposed rules remain open for public feedback until 31 August 2026. This timeline follows the Budget 2026-27 directive calling for a thorough review of non-debt instruments (NDI) rules. According to the RBI, this modernization effort represents a crucial update to India’s foreign investment framework. The central bank emphasized that streamlined regulations would encourage greater international capital inflows into various sectors of the Indian economy.

Key Structural Changes Proposed

One of the most substantial modifications involves separating the government’s FDI policy from the Foreign Exchange Management Act’s (Fema) operational provisions. Under the new draft structure, procedural elements remain governed by Fema, while sectoral caps and entry routes transition to the government’s FDI policy. The RBI will continue overseeing operational matters, including payment modes and reporting requirements, through its regulations and circulars. This clear division of responsibilities addresses long-standing regulatory overlaps.

These changes build upon measures implemented last month when the RBI and finance ministry expanded the portfolio investment scheme (PIS). The expansion increased the investment cap for individual Persons Resident Outside India (PROI) under the scheme to 10% of a company’s paid-up capital, up from the existing 5%. Additionally, the aggregate limit for all such investors has been raised to 24% from 10%. To operationalize these changes, the department of economic affairs had already notified the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026.

“The draft also broadens the scope of eligible investee entities, explicitly including Securities and Exchange Board of India-regulated investment vehicles such as Real Estate Investment Trusts (Reits), Infrastructure Investment Trusts (InvITs), Alternative Investment Funds (AIFs), venture capital funds, mutual funds, Exchange Traded Funds (ETFs), partnership firms and proprietary concerns registered under applicable domestic laws.”

The RBI will administer the updated rules, while interpretation of the foreign investment policy will remain with the department for promotion of industry and internal trade (DPIIT). This arrangement ensures that policy decisions and operational implementations work in harmony. The draft further consolidates the various permissible modes through which a resident outside India or a foreign-controlled entity may invest in or acquire equity. These include subscriptions to an issue, purchases, pledges, depository receipts, investments by non-resident (NRIs) and Overseas Citizens of India (OCIs) in the National Pension System, and foreign investment through international stock exchanges, subject to conditions.

The proposed framework also establishes common conditions applicable to foreign investments across different scenarios. For listed companies, pricing will follow Sebi regulations, and for companies listed on international exchanges, it will follow the pricing norms specified in the rules. All other transactions will be based on an internationally accepted arm’s-length valuation methodology certified by a chartered accountant, merchant banker or cost accountant. The finance ministry noted that this move will leverage existing onboarding systems for NRI and OCI investors, reduce compliance requirements and attract a broader pool of relatively stable foreign retail investors.