The Indian government has enacted the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026, effective immediately, to boost foreign investment and stabilize the rupee. The changes, announced on June 5, double the investment limit for individual Portfolio Investment Scheme (PROI) investors amid capital outflows and a weakening rupee, which closed at 95.08 against the dollar on Friday, improving from 95.74 on June 4.
The new rules allow an individual PROI to hold less than 10% of the total paid-up equity capital of a listed company, with the combined holding of all such investors in a company increased to 24% from 10%. Prior government approval is required if an investment results in the transfer of ownership or control to entities or citizens of countries sharing a land border with India.
Furthermore, any individual PROI investment exceeding the 10% limit must be divested within five trading days. Failure to divest will result in the entire investment being classified as Foreign Direct Investment (FDI), prohibiting further portfolio investments in that company. The breach must be reported to depositories and the concerned company within seven trading days.
“The decision seems to be taken with an eye on encouraging foreign investment into India, both FDI and FPI, at a time when there is a flight of capital.”
Mayank Arora, associate partner (regulatory) at professional services firm Nangia Global
"The decision seems to be taken with an eye on encouraging foreign investment into India, both FDI and FPI, at a time when there is a flight of capital," said Mayank Arora, associate partner (regulatory) at professional services firm Nangia Global.
These changes are part of broader efforts to attract foreign capital as the government seeks to mitigate the impact of geopolitical tensions in West Asia on the Indian economy. The rupee's depreciation has been a significant concern, prompting swift policy adjustments.
Background
These changes are part of broader efforts to attract foreign capital as the government seeks to mitigate the impact of geopolitical tensions in West Asia on the Indian economy. The rupee's depreciation has been a significant concern, prompting swift policy adjustments.
Looking ahead, market participants will closely monitor the impact of these regulatory changes on foreign investment flows and the rupee's stability. The government's proactive stance indicates a commitment to maintaining economic stability amid external pressures.
