Indian regulators are now asking a single, sharp question: who really controls the capital? The answer can affect your entry route, approval timeline, sector eligibility, competition clearance, and — if it changes post-closing — your ability to operate. The introduction of Press Note 2 of 2026 and consequent amendments to the FEMA rules, provides for a beneficial ownership test for investments from countries that share a land border with India. Investment with non-controlling beneficial ownership of up to 10% from such countries may now proceed under the automatic route, subject to applicable sectoral caps. Investments exceeding this threshold, or involving control, continue to require prior government approval.
Indian authorities now look through to ultimate economic and strategic influence and formal shareholding percentages alone do not determine the outcome.
For PE/VC funds with passive limited partners from countries that share a land border with India countries, the 10% threshold has provided significant practical relief — but fund managers must ensure that consent rights, LPAC vetoes, MFN side letters, and information rights held by such LPs do not, individually or in aggregate, constitute 'control' under the amended rules.
Domestic
- Promoter family layering
- Trusts
- Nominee shareholders
- Shadow financing
- Informal pledge arrangements
- Minority rights that legally become control rights in founder-led businesses
Foreign
- Hidden LP-level issues in global PE/VC funds: sovereign LPs, state-backed funds, advisory committee vetoes, consent rights, MFN side letters
- Indian authorities now look through to ultimate economic and strategic influence