Bonus Shares: FDI Sector Rule Change
India’s finance ministry has changed the game for foreign direct investment (FDI) by allowing companies with FDI restrictions to issue bonus shares to non-resident shareholders. This significant move, effective June 11, 2025, aims to streamline India’s equity restructuring and capital management processes. The new rules, part of a broader effort to attract foreign capital, clarify that the holdings of non-resident investors must remain constant after bonus share distributions. Furthermore, the ministry’s actions apply retroactively, validating past bonus share issuances, a relief for many firms. Experts believe this change enhances adaptability within current FDI policies, fostering a more welcoming habitat for international investors, especially given recent declines in FDI inflows. News directory 3 is following further developments in this key sector. Discover what’s next for foreign investment in India.
India Eases FDI Rules: Bonus Shares for Non-Resident Shareholders
The Indian finance ministry has amended regulations, permitting companies in sectors with foreign direct investment (FDI) restrictions to issue bonus shares to existing non-resident shareholders.These updated Foreign Exchange Management rules took effect June 11.
The ministry clarified that the shareholding stakes of non-resident investors must remain constant even after the bonus share distribution. experts believe this revision provides companies greater versatility in equity restructuring and enhances capital management without violating current FDI policies.
This action follows a similar FDI policy relaxation announced in April by the department for Promotion of Industry and Internal Trade (DPIIT). The finance ministry formalized the change by introducing a sub-rule in the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.
The notification specifies that bonus shares issued before the effective date of the sub-rule are considered compliant with the updated regulations. This initiative is part of the government’s broader strategy to liberalize equity investment rules, attracting more foreign capital into india.
Sandeep Jhunjhunwala, a partner at Nangia Andersen LLP, noted that the notification provides retrospective benefits for past bonus share issuances, clarifying the DPIIT’s April policy change. He added that the amendment addresses previous ambiguity regarding the retroactive submission of such relaxations, as FDI rule changes typically apply prospectively.
Finance Secretary Ajay Seth mentioned in February that the finance ministry and the Reserve Bank of India were collaborating to further simplify foreign exchange rules, particularly concerning non-debt instruments, to align them with modern standards.
With sector-specific FDI limits largely relaxed, the government is now focused on easing restrictive regulations to attract foreign investors amid global economic challenges. After peaking at nearly $85 billion in fiscal year 2022, total FDI inflows into India decreased over two years, reaching $71 billion in fiscal year 2024, before rebounding to $81 billion last fiscal year.
What’s next
The government is expected to continue reviewing and updating foreign exchange regulations to further enhance India’s attractiveness as an investment destination.