Jump to:
- Impact of India’s new ECB rules
- Relaxation of LBC FDI rules (Press Note 3 amendments)
- Greater clarity and efficiency for FDI
- Key takeaways
Both the new External Commercial Borrowing (ECB) and amended Land Bordering Countries (LBC) FDI rules offer Indian businesses expanded access to foreign capital and strategic partnerships. The easing of restrictions on cross-border investments will enable companies to fund restructurings, diversify supply chains, and pursue growth opportunities more efficiently. How will your business be impacted?
Impact of India’s new ECB rules
India’s 2026 ECB reforms, enacted via the Foreign Exchange Management (Borrowing and Lending Regulations) (First Amendment) Regulations, 2026, represent the most substantial policy relaxation in a decade. Now, any entity registered under Central or State law, including Limited Liability Partnerships (LLPs), may borrow under the ECB regime.
The reforms, among other things, expand the categories of eligible lenders, relax end-use restrictions, and ease maturity and pricing limits. Foreign lenders and funds gain flexibility in cross-border financing and the purposes in respect of which such financing may be raised, while facing fewer barriers for inbound investment.
Key changes include but are not limited to:
- Diverse lender participation: The removal of pricing constraints allows more lenders, including credit funds, to participate. Pricing will now be market-based instead of being capped at a benchmark plus specified spread, allowing for differential pricing norms depending on the sector, market conditions and market terms relative to the financing.
- Wider end-use options: Indian borrowers can now use ECBs for a wider range of purposes, the most significant of these being funding of domestic acquisitions where the stake is a strategic controlling stake
- Permitted: This materially opens up acquisition financing options for Indian targets.
The 2026 ECB reforms will have a positive impact on India’s cross-border borrowing landscape, supporting a flexible, market-oriented, and lender-diverse environment. An expanded and wider lender and borrower base presents multiple opportunities for refinancings, acquisitions, and private credit financings.
—Kunal Katre, Principal, Singapore
Relaxation of LBC FDI rules (Press Note 3 amendments)
The India government’s recent amendments to its FDI policy for investments from land-bordering countries (LBCs) relax earlier restrictions by allowing up to 10% non-controlling LBC beneficial ownership under the automatic route, with mandatory reporting. These changes, once implemented, will facilitate easier foreign capital inflow and reduce barriers for global investors with minority LBC participation, particularly benefiting PE/VC funds and multinational firms.
Businesses can look forward to improved access to foreign capital for Indian companies, streamlined cross-border dealmaking, and enhanced supply chain partnerships. This supports manufacturing investment and diversification, positioning India as a more attractive destination for global funds and supply chain strategists.
The government’s amendments are designed to clarify rules, streamline approvals, and unlock greater foreign investment, particularly for startups, deep-tech, and manufacturing, while strengthening domestic value chains and advancing Atmanirbhar Bharat.
—Mini Menon vandePol, Chair, Global India Practice
Greater clarity and efficiency for FDI
India’s revised FDI policy delivers faster approvals and greater clarity for LBC-linked investments, especially in electronics and renewable energy manufacturing. With a streamlined 60-day approval window, the new framework enables efficient cross-border collaboration. Importantly, majority shareholding and control must remain with resident Indian citizens or entities owned and managed by them, ensuring regulatory oversight over foreign influence.
Business impact is substantial. Indian corporates can access growth capital more readily; global funds with Asian Limited Partners (LPs) and distressed asset managers gain new avenues for investment; and supply chain strategists can accelerate diversification. The policy also supports Indian manufacturers seeking to broaden their supplier base and offers foreign investors easier entry into India’s high-yield credit market, strengthening India’s status as a premier Asian investment destination.
While the revised rules simplify processes for private equity, multinational corporations, and technology firms, they maintain robust control tests. This preserves oversight of LBC influence and aligns approvals with beneficial ownership standards, making the investment landscape more predictable and business-friendly.
Businesses engaging with LBC-linked investors should carefully assess their ownership structure, sector eligibility, and compliance requirements under the new policy.
—Howard Wu, Partner, Shanghai
To maximize these opportunities, businesses should:
- target actions such as forming joint ventures
- leverage new capital sources for restructurings
- pursue partnerships that integrate Chinese inputs into India-based value chains
- focus on stronger due diligence
- stay ahead of regulatory updates to maintain compliance and eligibility
Key takeaways
The revised FDI policy in India simplifies approval processes and clarifies rules, creating new opportunities for foreign investment in startups, deep-tech, and manufacturing, while ensuring control remains with resident Indian citizens or entities. Businesses benefit from enhanced access to capital and easier cross-border collaboration, but must still meet strong compliance and control requirements.
This article is being provided as general information and does not constitute legal advice. Baker McKenzie does not practice Indian law and where Indian law advice is needed, we work closely with top India-qualified lawyers. We’d be happy to discuss your needs in India. For more information, please contact Mini Menon vandePol.