The RBI's draft rules for foreign investment in 2026 have drawn criticism for missing critical documentation and policy rationales. The proposed joint liability model under Rule 9 has raised concerns about higher compliance costs and market uncertainty. Experts are calling for formal regulatory impact assessments to ensure policy clarity and maintain investor confidence.
The Reserve Bank of India has initiated a public consultation process for the draft Foreign Exchange Management Rules for 2026, aimed at modernizing India’s investment framework. However, the process has faced criticism from market experts and stakeholders due to a lack of complete supporting documentation. While parts of the framework are available, critical components—including the Department for Promotion of Industry and Internal Trade FDI policy and specific RBI regulations—have not been released for public review.
Concerns Over Transparency and Compliance Costs
One of the main points of contention is Rule 9, which proposes a shift in compliance responsibility. Under the current system, Indian investee companies generally manage compliance. The proposed joint liability model would require foreign investors to share this responsibility, which critics argue could inflate legal and administrative costs. There are also concerns that these added requirements might discourage capital inflows if they become too burdensome for investors.
Another area of ambiguity involves the classification of FDI and Foreign Portfolio Investment. The draft suggests reclassifying investments below 10% in unlisted entities, which creates uncertainty regarding how these will be monitored and reported to SEBI. Without access to the committee reports or the logic behind these structural changes, stakeholders find it difficult to assess how these rules will affect their day-to-day operations and regulatory standing.
The Argument for Regulatory Impact Assessments
To align with global practices, experts are urging the adoption of a formal Regulatory Impact Assessment framework. This approach, commonly used by OECD nations, requires regulators to conduct evidence-based analysis—such as cost-benefit or multi-criteria analysis—before implementing new rules. The goal is to weigh the potential costs against the benefits and identify any conflicts between the various agencies that oversee investments, such as the Ministry of Finance, the RBI, and the Ministry of Home Affairs.
In countries like the United Kingdom and Canada, regulators are legally required to publish detailed assessments alongside proposed rules. This practice provides a baseline for comparison, ensuring that new policies solve genuine market failures rather than creating artificial complexity. For India, shifting from piecemeal updates to a more predictable, transparent system is seen as essential for maintaining long-term confidence among global investors.
The next step for stakeholders will be to monitor whether the government releases the pending annexures or adjusts the draft rules in response to this feedback. Clarity on the joint liability model and the reclassification of small investments will be the key monitorables for the investment community as the 2026 framework takes shape.