Summary: In recent times, Shanghai Automobile Industry Corporation Motors is reported to be in talks with Jindal South West to sell another 10% stake in JSW MG Motor India, which, on paper it appears to be an ordinary corporate restructuring, with JSW becoming the largest shareholder and an EV brand turning more Indian. But viewed more closely through the lens of Indian foreign investment law, this transaction raises more concerns about foreign investment from bordering countries. The central framework is Press Note 3 of 2020, issued against the background of concerns over opportunistic takeovers and subsequently operationalised through the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, under which specified investments from countries sharing a land border with India require the Government route. The article examines whether a procedural condition, applied conservatively and for long enough, becomes a substantive prohibition without even being drafted as one. It considers SIAC’s entry into the Indian automobile industry, the restrictions on fresh equity investment, the earlier stake dilution in favour of Indian investors, and the reported further stake sale to JSW. It also considers India’s position that Press Note 3 conditions investment rather than expressly prohibiting it, as well as the March 2026 relaxation permitting certain non-controlling beneficial ownership from land-border jurisdictions up to 10%, while noting the stated treatment of PRC-incorporated entities. The broader issue is whether the operation of the FDI framework can constrain expansion-stage capital infusion by an existing foreign investor and thereby alter the commercial structure of an established Indian venture.
Introduction
In recent times, Shanghai Automobile Industry Corporation Motors is reported to be in talks with Jindal South West to sell another 10% stake in JSW MG Motor India, which, on paper it appears to be an ordinary corporate restructuring, with JSW becoming the largest shareholder and an EV brand turning more Indian. But viewed more closely through the lens of Indian foreign investment law, this transaction raises more concerns about foreign investment from bordering countries. The question is whether a procedural condition, applied conservatively and for long enough, becomes a substantive prohibition without even being drafted as one.
Press Note 3
In 2019, SIAC entered the Indian automobile industry with a plan to invest over $650 million. The company built manufacturing capacity, launched products, and currently in 2026, had its Windsor EV on the top sales chart in India. Even after growing in India at this rapid rate, the only thing SIAC failed to do was fund its own subsidiary. Press Note 3 of 2020, issued under the consolidated FDI Policy and operationalised through FEMA Rules, 2019, requires any investment from a country that shares land borders with India to go through the government approval route. Every rupee of fresh equity that SIAC wants to invest in JSW MG Motors India first needs to be approved by the Indian Government, which is bound by no statutory timelines. Also, there is no deemed approval if the government stays silent.
India’s Position
India’s legal position is technically defensible, as PN3 does not prohibit any investment; it rather conditions it. When China objected to the WTO, arguing that the policy violated the Most Favoured Nation principle under GATS Article II, India responded that a differential approval pathway is not the same as a market-access bar. Due to this, it becomes harder for the company to sustain, as capital cannot move, which stalls expansion, and the only option for the investor is to sell. From 2020 to now, this has happened to SIAC twice; as it is unable to inject funding, SIAC sold 10% to JSW in 2023 to bring in an Indian investor. Unable to inject equity again, it is now selling another 10% stake. Out of the proceeds of the sale, SIAC plans to reinvest Rs.6 billion into the venture to fund new EV and hybrid launches, which means that the company has to fund its own subsidiary through divestiture because directly investing more money is not an option. The partial relaxation in March 2026 in PN3, which allows automatic-route investment up to a 10% non-controlling stake from land-border jurisdictions, changes nothing for SIAC, as the government explicitly stated that PRC-incorporated entities will remain subject to mandatory approval.
Conclusion
In hindsight, the law here has trapped the investor who is present and commercially committed, unable to invest its own capital in its own company without permission from the Indian government. Until the PN 3 distinguishes between entry-level investment and expansion-stage capital infusion, it will regulate the area that it didn’t intend to.
