Investment Limit Hikes
Budget 2026-27 proposed considerable adjustments to investment limits to boost foreign investment into India. A key move was to increase the overall investment limit for Persons
Resident Outside India (PROIs) to 24% from the existing 10%. Furthermore, the individual investment limit saw an increase, climbing to 10% from the previous 5%. Finance Minister Nirmala Sitharaman stated that PROIs will now be permitted to invest in listed Indian companies' equity instruments through the Portfolio Investment Scheme. This strategy aims to deepen markets, increase Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) inflows.
FEMA Regulations Review
Alongside the investment limit revisions, the government plans a thorough examination of non-debt instrument rules outlined in the Foreign Exchange Management Act (FEMA). The aim is to establish a modern and user-friendly framework tailored for foreign investment. The existing Portfolio Investment Scheme under FEMA allows non-resident individuals to buy and sell shares or convertibles of listed Indian companies through a dedicated NRE PIS (non-resident external portfolio investment scheme) demat account with designated bank branches, requiring single-transaction reporting and end-of-day Reserve Bank of India (RBI) uploads while adhering to sectoral caps. These changes are designed to improve the ease of doing business and encourage capital inflows.
Strategic Objectives
These actions are specifically directed at strengthening capital inflows and boosting foreign investment. The modifications aim to attract investments from non-Indian foreign nationals, extending beyond non-resident Indians (NRIs) and Overseas Citizens of India (OCIs). The Economic Survey 2025-26, when presented, had highlighted that FDI inflows were below their potential, despite the government's clear intent and effective economic management. FDI attracts measures, such as tax holidays, customs exemptions, investment missions, and tailored tax incentives. It also suggested creating a task force to engage global companies and promote India's advantages to boost FDI, especially in targeted sectors.
Boosting Market Liquidity
The Budget announcements are expected to significantly benefit the market. The elimination of FPI registration hurdles for direct retail access will lead to reduced compliance costs and time, while enhancing market liquidity and depth. This initiative also aims to resolve classification disputes for companies and facilitate more diverse foreign inflows without diluting control safeguards. Previously, non-Indian nationals registered as FPIs with SEBI via custodians which involved complex KYC, net worth thresholds, and higher costs, or invested indirectly via offshore funds or exchange-traded funds or GIFT City vehicles. The adjustments signal a strategic shift toward a more accessible and dynamic investment environment.
