RBI's Draft Foreign Investment Rules: One Rulebook to Replace a Patchwork of Regulations

For years, anyone advising on foreign investment into India has had to work across two separate registers — the procedural mechanics laid down by the Reserve Bank of India under FEMA, and the sector-specific policy conditions set by the government's FDI framework. The two overlapped constantly, borrowed each other's definitions inconsistently, and left practitioners cross-referencing circulars, press notes and master directions just to answer what should have been a simple question: can this investment be made, and on what terms. On July 21, the RBI put out a draft that tries to close that gap. The draft Foreign Exchange Management (Foreign Investment) Rules, 2026, released for public comment, is intended to replace the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 — the NDI Rules that have governed non-debt foreign investment into the country for the past seven years.

The trigger for this rewrite goes back to the Union Budget for 2026-27, where the government flagged a comprehensive review of the NDI Rules as part of a push toward what it called a more contemporary and user-friendly foreign investment regime. A committee was subsequently formed to study the existing framework, and the RBI says the draft rules reflect that committee's recommendations, refined through further consultation with the government and other stakeholders. Comments on the draft are open until August 31, and can be submitted through the “Connect 2 Regulate” section on the RBI's website, or by email carrying the subject line “Feedback on Draft Foreign Investment Rules.” Only after that window closes and the feedback has been weighed will the rules be finalised and notified.

What makes this more than a routine tidy-up is the shift in regulatory philosophy the RBI is signalling. Rather than trying to anticipate and prescribe every permutation of how foreign capital might enter an Indian company, the draft moves toward a principle-based structure — broader definitions, fewer rigid triggers, and room for the framework to flex as deal structures and market practice evolve, while the central bank insists the core safeguards stay intact. In practical terms, that means consolidating definitions that were previously scattered or duplicated across different instruments, and drawing a firmer line between what belongs in the RBI's procedural rulebook under FEMA and what properly belongs in the government's sector-specific FDI policy. For years these two strands blurred into each other; separating them cleanly is meant to stop lawyers and compliance teams from having to reconcile two documents that were never designed to be read side by side.

One provision that has already caught the attention of deal lawyers is a proposed control test. The draft appears to introduce a more defined mechanism for determining when an investment amounts to “control” of an Indian entity, a question that has always mattered enormously for sectoral caps, downstream investment conditions and reporting obligations, but has historically been assessed somewhat unevenly. Analysts tracking the draft have pointed out that a sharper control test could have real consequences for minority investors and for how cross-border transactions get structured going forward — particularly in sectors where the line between a passive financial stake and an influence-carrying one has practical regulatory weight. Where exactly that line gets drawn in the final rules is likely to be one of the more closely watched aspects of the consultation.

The draft also folds in a cleaner set of provisions on pricing and overseas listing, an area that has grown more relevant as Indian companies look at international exchanges, including those within GIFT-IFSC, as a route to global capital. Under the proposed framework, an unlisted Indian company making its initial listing on a permitted international exchange would be allowed to have its issue price determined through the book-building process used by that exchange, rather than being forced into a separate valuation exercise designed for domestic transactions. At the same time, the draft tightens the circumstances under which shares that are listed internationally can be transferred back to an Indian resident from a non-resident holder, which suggests the RBI wants to keep a closer watch on transactions that effectively bring overseas-listed Indian equity back onshore outside the usual channels.

Responsibility for compliance is also being spread more explicitly across the parties to a transaction. The draft makes clear that the foreign investor, the Indian investee company, and — where relevant — the transferor and transferee in a share transfer will jointly carry the obligation to ensure the rules are followed. That is a meaningful change in tone from a framework where compliance obligations were sometimes read as resting primarily on the Indian company receiving the investment.

For legal and compliance teams across the GCC, APAC and broader markets that route capital into India, this draft is worth reading closely rather than waiting for the final notification. A principle-based framework tends to shift more of the interpretive burden onto practitioners in the early years, before enough transactions have tested how the RBI applies the new definitions in practice. The consolidation of pricing and listing provisions is likely to be welcomed by companies eyeing GIFT-IFSC or other permitted exchanges, since it removes some of the ambiguity that previously surrounded valuation for an overseas listing. The control test, on the other hand, is the provision most likely to generate detailed submissions during the comment period, given how much turns on where that threshold ultimately sits.

Nothing in the draft is final. The RBI has been explicit that the rules will only be notified after it has worked through the feedback received by August 31, and there is no indication yet of how the transition from the 2019 framework will be managed, or whether existing investment structures will be grandfathered in some form. For now, the draft gives the market its clearest look yet at where Indian foreign investment regulation is heading — toward a single, more coherent rulebook, built around fewer but sharper lines.