This proposal needs to be viewed in the context of measures announced by the government and the RBI last month to attract foreign capital.
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To bolster the recent government and RBI measures aimed at attracting foreign capital, plans are under consideration to allow non-resident Indians (NRIs) and overseas citizens of India (OCIs) to subscribe to the national pension system (NPS).This proposal needs to be viewed in the context of measures announced by the government and the RBI last month to attract foreign capital. These include expanding the list of ‘specified securities’ under the fully accessible route (FAR), increasing investment limits for NRIs and OCIs in listed equities, and the RBI bearing the full hedging cost for banks raising fresh 3-5 year FCNR (B) deposits.Rupee supportThese measures are aimed at attracting dollar inflows and supporting the rupee, which is facing pressure from rising crude oil prices and foreign portfolio investor (FPI) outflows from the equity markets amid the ongoing West Asia conflict.Assets under management (AUM) under the NPS stood at ₹17.27 lakh crore as of June-end 2026. Of the total corpus, subscriptions from State government employees accounted for 51 per cent, followed by Central government employees (25 per cent), the corporate sector (17 per cent), the all-citizens category (5 per cent) and the Unified Pension Scheme-Central Government (2 per cent).“A person resident outside India, being an NRI or an OCI, may subscribe to the NPS governed and administered by the pension fund regulatory and development authority (PFRDA). The annuity or accumulated savings will be repatriable,” according to the Draft Foreign Exchange Management (Foreign Investment) Rules, 2026.Akshat Khetan, Founder, AU Corporate Advisory & Legal Services, said the draft FEMA (Foreign Investment) Rules, 2026, represent a significant liberalisation of india’s foreign investment regime.“Allowing NRIs and OCIs to invest in the NPS with repatriable benefits is a strategic move to encourage long-term participation by overseas indians in india’s financial markets and attract stable foreign capital rather than short-term flows,” he said.Direct ListingThe proposed rules, which seek to create a more modern and investor-friendly framework for foreign investment, will allow a public company to issue equity shares or offer existing shareholders’ equity on international stock exchanges, subject to specified conditions.Khetan said the proposal would expand access to global capital, improve valuations, enhance liquidity and visibility, and reduce dependence on domestic markets, while continuing to retain sectoral caps and regulatory safeguards.Under the draft rules, a person resident outside India or a Foreign Controlled Entity (FCE) may invest in an eligible Indian entity on either a repatriable or non-repatriable basis through subscription to new issues, purchase of securities, gifts between natural persons, or pledge of securities.The rules also draw a clear distinction between different types of foreign investments.Foreign direct investment (FDI) refers to foreign investment of 10 per cent or more in the equity of a company or a limited liability partnership (LLP).Foreign portfolio investment refers to foreign investment of less than 10 per cent in the equity of a company or LLP.Referring to this explicit distinction, Khetan said it would provide greater legal certainty, improve regulatory clarity, simplify compliance requirements, and ensure that investments crossing the 10 per cent threshold are regulated as strategic investments.Published on July 21, 2026
