It also widened the definition of the term 'control' for mergers and acquisitions involving overseas companies, a move that will provide more clarity to foreign investors.
The notification follows the Cabinet decision of August 2 to relax overseas investment norms.
The foreign direct investment (FDI) policy is now notified under FEMA regulations and is effective from August 22, Department of Economic Affairs Secretary Arvind Mayaram told reporters here.
According to the new definition, 'control' will include "the right to appoint a majority of directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreement or voting agreements."
"We believe since the announcement of FDI policy, FDI has increased...FDI is increasing in India and investor confidence is increasing," Mayaram said.
In the first quarter of the current financial year, FDI was USD 9 billion, up from USD 5 billion in the corresponding period last year, he said.
The notification will have to be tabled in Parliament within 30 days of the commencement of the next session, Mayaram said, adding it could also be put to vote in case a member decides to challenge it.
As per the revised FDI guidelines, the government relaxed norms for multi-brand retail trading and eased the mandatory 30 per cent local sourcing norms for companies.
FDI in insurance has been kept at 26 per cent as the bill to raise the limit to 49 per cent is pending in the Rajya Sabha.
The cap in telecom was increased to 100 per cent from 74 per cent. FDI of up to 49 per cent can come through the automatic route.