Now Reading: RBI draft FDI rules may scare away foreign capital, warns ThePrint
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RBI draft FDI rules may scare away foreign capital, warns ThePrint
Net foreign direct investment (FDI) in India fell to about $7 billion in FY26, one of the lowest levels in recent years. The Reserve Bank of India has released draft Foreign Exchange…
Net foreign direct investment (FDI) in India fell to about $7 billion in FY26, one of the lowest levels in recent years. The Reserve Bank of India has released draft Foreign Exchange Management (Foreign Investment) Rules, replacing the Non-Debt Instruments Rules of 2019, and invited public comments until August 31. The draft proposes major changes to pricing and the definition of foreign control.
Under the proposed pricing rules, transactions must occur only at an exact determined price, removing existing flexibility such as earn-out clauses or distress discounts. The draft also replaces the Foreign Owned or Controlled Company (FOCC) framework with a Foreign Controlled Entity (FCE) framework. Any Indian company with less than 50% foreign equity but foreign control rights would now qualify as foreign, triggering pricing floors, sectoral caps and FEMA reporting.
Indian Opinion Analysis
The two proposed changes target distinct regulatory gaps. The pricing shift closes a loophole where parties used the gap between floor and ceiling values to structure deals that the RBI could not monitor uniformly. The control change closes the pass-through trap, where a foreign investor controlled an Indian entity without majority ownership. The risk is that both rules, applied together, raise compliance costs and deter private equity and distressed-asset buyers. The RBI's own rationale is not in the draft, making the comment period crucial. Market participants will watch how many of the 50-odd public comments the RBI incorporates before finalising the rules.
The real test is whether the final rules retain the exact-priced mandate or restore a band. If the band returns, deal-making flexibility survives.
Source: theprint.in
This story was synthesised by AI from the source linked above.
