Research and Articles

BACKGROUND:

The Department for Promotion of Industry and Internal Trade ("DPIIT") vide its circular dated May 4, 2026, has issued a new Standard Operating Procedure ("New SOP")¹ for processing foreign direct investment ("FDI") proposals, replacing the Standard Operating Procedure dated August 17, 2023 ("SOP 2023")². These procedures govern the process and procedure for filing and processing of FDI proposals requiring Government approval, including prescribed timelines and internal monitoring mechanisms.

As a background, SOP 2023 had replaced the erstwhile SOP dated November 9, 2020 ("SOP 2020")³, and SOP 2020 had in turn replaced the initial SOP dated June 29, 2017 ("SOP 2017")⁴. Our detailed analysis of SOP 2023 can be found here. SOP 2017, SOP 2020 and SOP 2023 together shall be referred to hereinafter as “Erstwhile SOP”.

The New SOP is part of a broader suite of amendments to India's investment framework applicable to countries sharing a land border with India ("LBC"), following the Union Cabinet's approval of revisions to Press Note 3 (2020 Series) (“PN3”)pursuant to the press release dated March 10, 2026,⁵ and the subsequent issuance of Press Note 2 (2026 Series) dated March 15, 2026⁶ ("PN2 of 2026"), and the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026 dated May 1, 2026⁷ (collectively, the “New LBC Framework”).

The New SOP primarily seeks to operationalize the reforms introduced under the New LBC Framework, including the calibrated beneficial ownership ("BO") threshold, automatic route for non-controlling investments below 10%, related reporting requirements, and the 60-day fast-track approval mechanism for specified manufacturing sectors. Our detailed analysis of PN2 of 2026 can be found here. It also addresses certain procedural gaps under the SOP 2023.

KEY CHANGES UNDER NEW SOP (IN COMPARISON WITH ERSTWHILE SOP):

A. Change in approval process and timelines

Under the New SOP, there has been minimal change in the manner of filing documents through the National Single Window System⁸ (“NSWS Portal”). The changes are primarily aimed at reducing procedural friction and improving inter-departmental coordination.

While the FDI proposal filing process substantially remained digital even under the Erstwhile SOP, physical copies of original documents could be sought where doubts arose regarding authenticity. The New SOP has dispensed with this requirement, thereby introducing a fully digitalised verification and approval process.

Further, although the Erstwhile SOP prescribed a 12-week approval timeline, operational requirements and procedural duplications often resulted in approvals typically taking between 4 to 6 months (in some cases. beyond 6 months) in practice. The New SOP has removed certain such operational requirements to expedite the approval process, as discussed below.

• Centralised Portal-Based Clearance Mechanism: The New SOP mandates that all comments and clearances from the Ministry of Home Affairs (“MHA”), the Ministry of External Affairs (“MEA”) and the Reserve Bank of India (“RBI”) shall be uploaded directly on the NSWS Portal and be directly accessible to the concerned Administrative Ministry/Department and DPIIT. From an operational perspective, this is expected to reduce procedural friction and improve coordination by eliminating the need for separate offline follow-ups with multiple ministries.

• Deemed MHA Approval: Under the Erstwhile SOP, deemed approval applied in cases where the RBI and MEA failed to furnish comments on the FDI application within the prescribed timeline, whereas the MHA could extend timelines by intimating the concerned Administrative Ministry/Department. The New SOP has now extended the deemed approval framework to MHA comments as well, which is expected to reduce delays and significantly expedite the approval process in practice.

• Dispensation with Secretary-Level Approvals: The New SOP dispenses with the earlier requirement of obtaining approval of the Secretary of the concerned Administrative Ministry/Department before referring matters to DPIIT or consulting other Ministries/Departments, thereby facilitating smoother inter-departmental coordination.

• Closure of FDI Application:The New SOP introduces a time-bound framework for scrutiny and closure of FDI applications. The Competent Authority is now required to scrutinise applications within 1 week of filing, following which additional clarifications, information or documents may be sought, if required. Where the applicant fails to respond within 1 week, a reminder is to be issued granting a further 7 days, followed by a final reminder granting an additional 7 days in cases of continued non-compliance without adequate justification. Failure to adequately address the queries raised or furnish the prescribed information/documents despite such reminders may result in closure of the FDI application. This replaces the broader and discretionary framework under the Erstwhile SOP, which did not prescribe any time-bound process and often resulted in practical delays.

• Rectification of mistakes in Approval Letters: Under the erstwhile SOP, rectification of an approval letter was restricted only to typographical or grammatical errors in the text of the approval. The New SOP has now done away with this restrictive approach and permits rectification of errors beyond those that are merely grammatical or typographical in nature.

B. Changes with respect to LBC Investment Matters

In addition to the aforesaid changes in the approval process, the New SOP appears to widen the role of the MEA in dealing with the LBC investment proposals, as its drafting suggests that the MEA may now be required to provide “comments or clearance” rather than merely “comments” as contemplated under the Erstwhile SOP.

A significant structural addition under the New SOP is Annexure VII titled “Guidelines on Investments from Countries Sharing Land Border with India (LBCs)”, which operationalises the New LBC Framework. Annexure VII broadly deals with: (i) prior DPIIT reporting guidelines for inbound investments covered under Para 3.1.1(d) of the FDI Policy [i.e., investments where the investor entity has direct or indirect LBC investment and BO cumulatively below the threshold prescribed under Section 2(fa) of the Prevention of Money-Laundering Act, 2002 (“PMLA”) read with Rule 9(3) of the PMLA (Maintenance of Records) Rules, 2005 (“PMLA Rules”)], which are permitted without prior Government approval but subject to prior DPIIT reporting (“Exempted LBC Investments”); and (ii) guidelines for proposals seeking Government approval for LBC investments in specified sectors/activities.

(i) Reporting Guidelines for Exempted LBC Investments:

• The New SOP operationalises the reporting framework for Exempted LBC Investments by prescribing detailed information and documentation requirements under Schedule I, to be filed electronically on the NSWS Portal without any physical submission.

• The reporting obligation rests on the Indian investee entity or resident Indian transferor/transferee, as applicable. Accordingly, the Indian investee entity is required to undertake reporting for primary investments, while the resident Indian transferor/transferee will be responsible for cross-border secondary transactions. In case of non-resident to non-resident or indirect transfers resulting in Exempted LBC Investments, while the New SOP does not expressly clarify this, the Indian investee entity may be required to undertake the DPIIT reporting.

• The reporting is required prior to inward remittance of foreign capital or, in transactions not involving inward remittance (such as share swap), prior to execution of transaction documents. Accordingly, the Authorised Dealer Banks (“AD Banks”) may, in practice, require proof of completion of DPIIT reporting through the NSWS Portal before facilitating inward remittance for Exempted LBC Investments.

• Schedule I requires extensive disclosures relating to investor/investee particulars, upstream ownership structures, BO positions, governance rights, board composition, downstream investments and other control rights.

(ii) Expedited Approval Mechanism for Specified Sectors:

• Pursuant to the New LBC Framework, Annexure VII has introduced a fast-track approval mechanism under Schedule II for specified LBC investments requiring Government approval under PN2 of 2026. Investments involving up to 49% capital or voting rights in an Indian owned and controlled company (“IOCC”) engaged in specified sectors are proposed to be processed within 60 days from filing, as against the general 12-week timeline under Annexure V.

• The specified sectors broadly include: (a) capital goods manufacturing; (b) electronic capital goods and electronic component manufacturing; (c) polysilicon and wafer manufacturing; (d) advanced battery components; (e) rare earth permanent magnets; and (f) rare earth processing. The selection of these sectors appears to reflect a calibrated policy response to India’s manufacturing dependencies and supply-chain vulnerabilities, particularly in sectors where China continues to hold a dominant technological and supply-chain position.

OUR VIEWS:

While the New SOP is a welcome step towards streamlining the FDI approval process, certain operational aspects may continue to pose implementation challenges and warrant regulatory clarification.

The New SOP requires even Exempted LBC Investments to furnish BO disclosures, along with extensive details regarding the proposed investment, investor, and investee entities. Since investments qualifying for the automatic route exemption are, by definition, not expected to involve any controlling or material LBC nexus, subjecting them to the same level of ownership disclosure as approval-route proposals may raise practical concerns relating to confidentiality, execution timelines, and compliance burdens, particularly for offshore PE/VC fund structures involving commercially sensitive governance arrangements.

Further, although Schedule I reporting applies where the investor takes the position that no LBC BO exists above the threshold prescribed under the PMLA Rules, the reporting format nevertheless requires disclosure of BO particulars from LBC jurisdictions as per the same threshold. This appears inconsistent with the very basis on which Schedule I reporting has been permitted for such investments.  

Additionally, while the SOP prescribes detailed procedural allocation within the general 12-week approval framework, no corresponding allocation has been specified for the 60-day expedited timeline applicable to LBC investments in specified manufacturing sectors. Accordingly, the practical implementation and consistency of adherence to such compressed timelines remain to be seen.

Apart from the above SOP-related concerns, certain broader issues under the New LBC Framework also remain unaddressed such as - permitting follow-on investments by existing LBC investors holding shares prior to the introduction of PN3, particularly where such investments merely maintain pre-PN3 shareholding levels, including participation in rights or bonus issues or exercise of investor protection rights; clarifying the applicability of New LBC Framework to other foreign investment routes, such as LLP investments under Schedule VI and FVCI investments under Schedule VII of the NDI Rules, given the historically conservative approach adopted by some AD Banks in applying PN3 to said other modes; and extending the benefit of the New LBC Framework retrospectively by grandfathering earlier investments that satisfy the PMLA Rules-based BO criteria.

 Overall, the New SOP reflects a positive move towards a more streamlined, digital, and efficient FDI approval framework under the New LBC Framework. However, targeted regulatory clarifications on certain implementation aspects would further enhance certainty, reduce compliance friction, and better align the framework with its objective of facilitating legitimate foreign investment flows.

Smita Singh, Harit Gandhi and Chandrashekhar K
You can direct your queries or comments to the authors.

¹https://fifp.gov.in/Forms/SOP.pdf

²https://www.nsws.gov.in/portal/fifp

³https://dpiit.gov.in/ sites/default/files/ SOP-dated-09112020-for-pro cessing-of-FDI-Proposals- 10Nov2020.pdf

⁴https://www.fdi.finance/front-assets/images/pdf/SOP.pdf

⁵https://www.pib.gov.in/PressReleaseDetail.aspx?PRID=2237806&reg=1&lang=1

⁶https://www.dpiit.gov.in/static/uploads/2026/03/b9da5830b052c2f2d788593e97d07c63.pdf

⁷https://egazette.gov.in/WriteReadData/2026/272196.pdf

⁸The Foreign Investment Facilitation portal accessible at: https://www.nsws.gov.in/