India revises FDI rules for land-bordering countries, easing minority investment

India’s Union Cabinet has approved an amendment to Press Note 3 of 2020, which requires government approval for investments from countries sharing a land border with India. The revision introduces a 10% beneficial ownership threshold below which investors from these countries can invest through the automatic route without prior clearance. For the power sector, the main implications relate to the upstream solar manufacturing supply chain.

Changes introduced under the amended framework

Press Note 3 of 2020 was introduced during the COVID-19 pandemic to prevent opportunistic acquisitions of distressed Indian companies by investors from neighbouring countries, with China identified as the primary concern. Under the earlier rule, even minimal beneficial ownership from a land-bordering country triggered the government approval requirement.

The revised framework issued by the Department for Promotion of Industry and Internal Trade (DPIIT) adopts beneficial ownership definitions from the Prevention of Money Laundering Rules. Investors from land-bordering countries holding non-controlling stakes of up to 10% can now invest through the automatic route, subject to sectoral caps and mandatory disclosure to DPIIT. Investments above that threshold continue to require government approval.

The amendment also introduces a 60-day processing timeline for approval-route proposals in selected manufacturing sectors. These include capital goods, electronic capital goods, electronic components, and polysilicon and ingot-wafer manufacturing. In all such cases, majority ownership and control of the Indian entity must remain with resident Indian citizens or entities owned and controlled by them.

Upstream solar manufacturing remains limited

The inclusion of polysilicon and ingot-wafer manufacturing within the expedited approval category is most directly relevant to the power sector. These stages represent the upstream segment of the solar photovoltaic supply chain, where India’s domestic capacity remains limited compared with downstream manufacturing.

According to the Ministry of New and Renewable Energy (MNRE), India’s solar module manufacturing capacity increased from 38 GW in March 2024 to 74 GW in March 2025. During the same period, the country commissioned its first 2 GW of ingot and wafer manufacturing capacity, while solar cell manufacturing capacity expanded nearly threefold.

Despite these gains, upstream capacity remains lagging. The Production Linked Incentive (PLI) Scheme for High-Efficiency Solar PV Modules has supported downstream manufacturing growth, but polysilicon and wafer production remain limited. An assessment by the Institute for Energy Economics and Financial Analysis (IEEFA) indicates that India has 3.3 GW of operational polysilicon production capacity and 5.3 GW of annual nameplate wafer capacity.

Import dependence remains high. India imported 65.9 GW of solar cells and modules in 2024, with cells accounting for 64% of those imports. In the same year, India added 11.6 GW of solar cell manufacturing capacity.

Global supply chain dominated by China

The limited domestic upstream capacity reflects global supply chain dynamics. According to the International Energy Agency (IEA) Special Report on Solar PV Global Supply Chains, China accounts for more than 80% of global manufacturing capacity across key stages of solar panel production.

For polysilicon and wafer manufacturing, China’s share is projected to exceed 95% based on capacity currently under construction. The IEA also notes that China’s Xinjiang province accounts for about 40% of global polysilicon production, and that one in seven solar panels produced globally originates from a single manufacturing facility.

In this context, the rapid development of upstream solar manufacturing in India remains difficult without access to Chinese technology or capital. The revised foreign direct investment (FDI) framework could facilitate joint ventures or technology partnerships in which Chinese firms hold minority stakes below the 10% threshold, or larger investments processed under the 60-day approval timeline.

Current trends in foreign investment in the energy sector

India’s FDI policy allows up to 100% investment under the automatic route in the renewable energy sector. Between April 2020 and June 2025, the sector attracted $23 billion in foreign investment under this framework.

Across the broader power sector, including conventional generation and distribution, cumulative FDI inflows reached $19.68 billion. The sector recorded 144% year-on-year growth in FY 2023-24, with inflows reaching $1.7 billion.

Chinese investment remains a small share of overall FDI. Data from DPIIT shows China ranked 23rd among investing countries, accounting for 0.32% of total inflows. This represents approximately $2.51 billion across all sectors from April 2000 to December 2025.

Potential impact of the revised rules

The introduction of the 10% automatic-route threshold is unlikely to result in significant Chinese ownership of Indian power generation or grid assets in the near term. Its immediate impact is expected in global private equity and venture capital investments where a Chinese limited partner holds a small, non-controlling stake. Under the previous framework, such investments required government approval regardless of the level of influence.

For the power sector, the provision allowing faster approval for polysilicon and ingot-wafer manufacturing projects may have greater relevance. The measure is intended to enable Indian manufacturers to establish joint ventures with international upstream producers while retaining majority ownership.

India’s National Electricity Plan 2022-32 estimates that the power sector will require approximately $400 billion in investment through 2032. Expanding upstream solar manufacturing capacity is considered necessary to achieve the country’s target of 500 GW of non-fossil fuel capacity by 2030. According to MNRE data, India had installed 242.8 GW of non-fossil fuel capacity as of June 2025, including 233.99 GW from renewable energy sources.

Debate over supply chain dependencies

The amendment does not alter the policy framework governing foreign investment in transmission and distribution infrastructure. Grid infrastructure has not been identified as a sector open to Chinese ownership. The requirement that majority ownership and control remain with Indian entities also applies to investments covered under the revised rules.

However, some policy discussions have raised concerns about technological dependence arising from minority joint ventures in manufacturing sectors that supply grid-connected equipment. Even without formal ownership control, such arrangements could create supply chain vulnerabilities.

The IEA has similarly noted that geographical concentration in solar manufacturing supply chains presents structural risks regardless of ownership of the final installations. The longer-term impact of the policy revision will depend on how investment patterns evolve and how effectively the disclosure and ownership requirements are implemented.

The featured photograph is for representation only.