New Delhi, Mar 11 (KNN) The Union Cabinet, chaired by Prime Minister Narendra Modi, has relaxed foreign direct investment (FDI) rules for companies from China and other countries which share land borders with India.
An official statement said that the change in FDI rules is aimed at unlocking greater FDI inflows from global funds for startups and deep techs.
Citing opportunistic takeovers of Indian companies due to Covid pandemic, the government had in 2020 changed FDI rules so that companies or investors from countries sharing a land border with India can invest only with prior government approval. The move was largely seen as the one targeted at China.
Clear Definition of Beneficial Ownership
The revised framework introduces a clear definition and criteria for determining ‘Beneficial Owner’, aligning it with provisions under the Prevention of Money Laundering Rules, 2005. The beneficial ownership test will be applied at the investor entity level.
Under the new rules, investors from land-bordering countries with non-controlling beneficial ownership of up to 10 percent will be permitted to invest through the automatic route, subject to applicable sectoral caps, entry conditions and reporting requirements by the investee company to the Department for Promotion of Industry and Internal Trade.
Faster Approval Process for Key Sectors
The government has also introduced expedited approval timelines for certain investment proposals. Investments from land-bordering countries in specified manufacturing sectors, including capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer, will now be processed within 60 days.
A Committee of Secretaries under the Cabinet Secretary will have the authority to revise the list of eligible sectors for fast-track approvals.
The revised guidelines stipulate that in such cases the majority shareholding and control of the investee entity must remain with resident Indian citizens or Indian-owned and controlled entities at all times.
Policy Revision to Boost Investment Flows
The policy revision follows the earlier restrictions introduced through Press Note 3 (2020), which mandated government approval for investments from countries sharing a land border with India. The measure was introduced in April 2020 to prevent opportunistic acquisitions of Indian companies during the COVID-19 pandemic.
However, the government noted that applying the restrictions even to minority and non-strategic investments, particularly by global private equity and venture capital funds, had affected investment flows.
According to the government, the updated framework is expected to improve regulatory clarity, reduce procedural delays and enhance ease of doing business.
The changes are also aimed at facilitating greater foreign direct investment, technology inflows, domestic value addition and deeper integration of Indian firms with global supply chains, while supporting the objectives of Atmanirbhar Bharat.
(KNN Bureau)
