Published Tue, Jul 21, 2026 · 11:35 PM
[MUMBAI] India’s central bank on Tuesday (Jul 21) proposed changes to foreign exchange management rules, broadening the conditions used to determine whether an Indian firm is controlled by foreign shareholders.
The changes were part of draft rules that the Reserve Bank of India (RBI) said aim to create a more user-friendly framework for foreign investment. The central bank has sought feedback by 31 August.
Under the proposed framework, an Indian entity would be deemed foreign-controlled if a foreign investor holds 10 per cent or more of voting rights, can appoint a majority of directors or can influence management and policy decisions.
The proposals drew immediate concern from lawyers, who warned the new numerical threshold could expand the definition of foreign control.
“The RBI has introduced a numerical benchmark that does not presently exist and could expand the circumstances in which a foreign investor is regarded as exercising control and attract higher compliances,” said Anuroop Omkar, founding partner at AK & Partners, a law firm.
The RBI proposals are part of India’s broader push to attract foreign investment including through tax cuts and lower compliance costs, even as capital outflows persist.
The concern centres on minority investors. Anjali Malhotra, partner, regulatory, at consultancy firm Nangia Global, said the proposed definition of control warrants further consideration.
“The implications of introducing this quantitative threshold, particularly in situations where investors hold limited minority rights that do not amount to effective control, require careful evaluation in the context of cross-border investment structures and established market practices,” she said.
If retained in its current form, this could have important implications for how governance rights are structured in mergers and acquisitions, private-equity transactions and joint ventures, Moin Ladha, partner at law firm Khaitan & Co, said.
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Suresh Swamy, partner at Price Waterhouse, said it remained unclear whether a 10 per cent holding alone, or combined with management rights, would be enough to trigger a control designation.
“Presumably, the intention is not to treat every 10 per cent investor as exercising control, particularly where the rights are merely protective in nature,” he said.
The RBI was not immediately available for comment. REUTERS
