含羞草社区

In a significant policy shift that resolves a longstanding regulatory ambiguity about the issue of shares to foreign shareholders by companies in the prohibited sector, the Ministry of Finance has introduced the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2025. This amends rule 7 of the 2019 rules, which govern the acquisition of shares through rights or bonus issues. In what is now rule 7(2), Indian companies operating in sectors where foreign direct investment (FDI) is prohibited are allowed to issue bonus shares to their existing non-resident shareholders, provided that the shareholding pattern remains unchanged.

含羞草社区 FDI policy has driven its economic transformation, shaping its global attraction as a destination for foreign investors. In December 2024, India passed a historic milestone, reaching USD1 trillion of FDI inflows since April 2000. The first half of this fiscal year alone saw a 26% increase in FDI inflows compared to the previous year, demonstrating investor confidence in 含羞草社区 economic growth.

含羞草社区 FDI policy is a strategic balancing act. Although the government has actively encouraged foreign investment, it has also maintained necessary controls over sectors essential for national security and economic sovereignty. Certain industries, including information technology, renewable energy, manufacturing and vehicles, allow 100% FDI under the automatic route. Others, such as insurance, impose sectoral caps requiring approval for percentages exceeding a certain level. Access to a number of industries is, however, denied to foreign investors. This is because of regulatory and policy considerations in such areas as lotteries, gambling and betting, chit funds, Nidhi companies and tobacco. Although some of these sectors have always barred FDI, many have been restricted later. Tobacco, for example, was put out of reach in May 2010. Such restrictions ensure the sectors remain under sovereign control, preventing undue foreign influence.

A longstanding issue was whether the issue of bonus shares to non-resident shareholders was permitted in the prohibited sectors. Although the position for new foreign investments in prohibited sectors was clear, companies operating in these sectors were uncertain whether they could issue bonus shares to existing non-resident shareholders. The concern was that although issuing bonus shares did not bring in additional foreign capital, the number of shares held by non-resident investors increased. Companies worried they would inadvertently breach FDI restrictions and thus refrained from issuing bonus shares to non-resident shareholders. For example, tobacco company, Godfrey Phillips, was reported as seeking consent in September 2024 from the Reserve Bank of India to issue such shares.

To address this matter, the Department for Promotion of Industry and Internal Trade issued in April 2025, bringing much-needed relief about the issue of bonus shares in FDI-prohibited sectors. This made it clear that Indian companies in prohibited sectors can issue bonus shares to their pre-existing non-resident shareholders, provided that the shareholding pattern remains unchanged and applicable laws are followed. The clarification is significant because it confirms that bonus share issues do not bring in new FDI.

The resultant amendment has significant implications for Indian companies and non-resident shareholders. First, for Indian companies operating in FDI-prohibited sectors, it provides the opportunity to reward existing non-resident shareholders while continuing to comply with non-resident exchange laws. For example, prominent tobacco companies in India have key non-resident shareholders, and this clarification will provide them with considerable relief. Second, non-resident shareholders will know they have greater investment security by being reassured that they can legally receive bonus shares. The amendment brings regulatory clarity and reduces uncertainty and legal risks surrounding bonus issues.

The amendment is a step in the right direction, refining 含羞草社区 FDI governance structure. By removing the ambiguity surrounding bonus share issues in prohibited sectors, the government reaffirms its commitment to striking a balance between investment openness and necessary regulatory safeguards.

Bharath Reddy is a partner and Simran Jain is a senior associate at Cyril Amarchand Mangaldas