India is on the verge of a major overhaul of its foreign direct investment (FDI) regulations. The new rules, aimed at curbing indirect foreign control, will introduce a new classification — Foreign-Owned and Controlled Entities (FOCE) — to bring greater transparency and scrutiny over share transfers, restructurings, and sectoral caps.
What’s Changing?
Under the proposed rules, any Indian company that is indirectly controlled by foreign residents will be classified as a FOCE and subjected to full FDI compliance, even for internal changes such as restructurings or share transfers. These changes will also be governed by fair market valuation norms and reporting requirements.
Why Now?
A government official stated, “What cannot be done directly should not be allowed indirectly either.” The new FOCE rules aim to shut down existing loopholes and ensure FDI norms are not bypassed using layered ownership structures or offshore entities.
Sectors Likely to Be Affected
- E-Commerce: Companies with layered ownership structures may face new restrictions.
- Pharmaceuticals: Foreign-backed drug firms will have to comply with sectoral caps and seek approvals for internal moves.
- Investment Funds: Even Indian-registered funds with foreign control could fall under FOCE norms.
National Security & Geopolitical Backdrop
The move comes in the wake of rising concerns over foreign — particularly Chinese — influence in sensitive sectors. Since 2020, India has required prior approval for FDI from neighboring countries. The FOCE rule will further restrict indirect entry by such actors using layered or shell investment routes.
What This Means for Businesses
Companies with foreign backing — even those considered domestic on paper — could now face:
- Stricter approval requirements
- More disclosure obligations
- Compliance with fair market valuations
- Limited restructuring flexibility
Final Call Awaits
The Finance Ministry and the Reserve Bank of India are still finalizing the details. However, sources confirm that both are in broad agreement, and the policy update could be announced soon.
Bottom Line
India’s FOCE framework signals a toughened stance on foreign influence in domestic business, particularly in strategic and consumer-facing sectors. It’s a clear message: indirect ownership will no longer be a workaround for FDI rules.
