RBI Draft Foreign Investment Rules 2026: Key Changes from the NDI Rules, 2019

On 21 July 2026, the Reserve Bank of India (RBI), in consultation with the Central Government, released the Draft Foreign Investment Rules, 2026 for public consultation. These Draft Rules are proposed to replace the existing Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules). Comments have been invited from stakeholders until 31 August 2026, after which the Rules are expected to be finalised.

The Draft Rules do not establish a new foreign investment framework, but seek to simplify the existing investment framework. The focus is on improving clarity, consolidating provisions and making the regulations easier for businesses and the investing community to understand the investment framework and ease compliance.

Who Should Read This?

This update is relevant for:

• Companies with foreign investment
• Foreign investors planning to invest in India
• Start-ups looking to raise funds from overseas investors
• Indian businesses planning to bring in foreign investment
• Multinational companies operating in India

Key Changes Proposed

1. Introduction of the Foreign Control Entity (FCE) Concept

A key change is the introduction of the concept of Foreign Control Entity (FCE). The Draft Rules describe an FCE as the resident company, LLP or investment vehicle that is owned or controlled by a person outside of India. While the NDI Rules dealt with ownership, control and downstream investments, the inclusion of an FCE provides additional clarity for businesses that operate via multi-layered corporate structures.

2. Foreign Direct Investment (FDI) Policy to Form Part of the Rules

FDI Draft Rules incorporate the Foreign Investment Policy (FDI Policy) as Annexure II. Instead of referring to multiple schedules and notifications, sectoral caps, entry routes and sector-specific conditions are now brought together in one place. This is expected to make the framework easier to understand and simplify future policy updates.

3. Separate Framework for Direct Listing

The provisions relating to the direct listing of Indian public companies on recognised international stock exchanges have been placed in a separate annexure. Although this is not a new concept, presenting it separately makes the framework much easier to navigate for companies considering overseas listings.

4. Recognition of Investments through Rupee Vostro Accounts

Proposed Rule set out that investments via Special Rupee Vostro Accounts are recognized as foreign investments, subject to RBI directions. This reflects India's continuing efforts to promote cross-border transactions and trade settlements in Indian Rupees.

5. Clearer Allocation of Regulatory Responsibilities

The Draft Rules clearly distinguish the roles of the RBI and the Department for Promotion of Industry and Internal Trade (DPIIT). While the RBI will continue to administer FEMA-related operational matters, the interpretation of the FDI Policy will remain with DPIIT. This distinction brings greater clarity on the responsibilities of each regulator.

6. Greater Clarity on Compliance Responsibility

A separate provision has been introduced to specify who is responsible for complying with the Rules. The onus of compliance rests with the foreign investor, the eligible investee entity and, wherever applicable, the transferor and transferee. Bringing these obligations together in one provision makes the compliance framework clearer than under the existing Rules.

7. Simpler and More Structured Framework

The Draft Rules reorganise the foreign investment framework into a more principle-based structure supported by annexures. Although the substantive law remains largely unchanged, the new format makes the Rules easier to interpret and apply.

8. Clear Exclusion for IFSC Financial Institutions

The Draft Rules clarify that investments in financial institutions established in an International Financial Services Centre (IFSC) will continue to be governed under the applicable IFSC regulatory framework and not under these Rules. This removes any possible overlap between the two regulatory regimes.

Conclusion

The Draft Foreign Investment Rules, 2026 are aimed at making India's foreign investment framework simpler, more transparent and easier to follow. While the Draft Rules do not introduce major changes to India's foreign investment policy, they are expected to improve clarity and reduce compliance challenges for businesses and investors.

Companies with existing foreign investment or those planning to receive investment from overseas should monitor the final notification and evaluate its impact once the Rules are officially notified.

For assistance, reach us at enquire@kdpaccountants.com, Our FEMA and foreign Investment advisory team can help you understand the proposed changes and assess their implications.

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Ujala Prajapati is a CA Final student in the last year of her articleship with a strong focus on foreign exchange laws and cross-border regulatory compliances. She has practical experience in foreign investments, Overseas Direct Investments (ODI), AIF-related RBI compliances, and regulatory reporting under the RBI framework.

Ujala has assisted clients in managing overseas investments, resolving EDPMS/IDPMS issues, and handling FEMA and income-tax compliances for foreign subsidiaries. With a keen interest in international finance and capital markets, she aims to build expertise in global regulatory frameworks and cross-border investments.