The Union Cabinet chaired by Prime Minister Narendra Modi has approved changes to the Foreign Direct Investment (FDI) policy governing investments from countries that share a land border with India, including China.
The amendments seek to provide greater clarity under the framework introduced through Press Note 3 (2020) and introduce a clearer approval timeline for certain investments in critical manufacturing sectors.
The revised guidelines introduce a formal definition and criteria for determining the ‘Beneficial Owner’.
The definition aligns with the framework used under the Prevention of Money Laundering Rules, 2005 and will be applied at the level of the investor entity.
Under the revised policy, investors from land bordering countries with non-controlling beneficial ownership of up to 10 per cent will be permitted to invest through the automatic route, subject to applicable sectoral caps, entry routes and attendant conditions.
Such investments will require the investee company to report relevant details to the Department for Promotion of Industry and Internal Trade (DPIIT).
The Cabinet has also approved expedited processing of investment proposals in specific manufacturing sectors considered important for India’s industrial ecosystem.
Proposals involving investments from land bordering countries in capital goods manufacturing, electronic capital goods, electronic components, polysilicon, and ingot-wafer production will be processed and decided within 60 days.
The list of sectors eligible for this fast-track approval mechanism may be revised by the Committee of Secretaries (CoS) under the Cabinet Secretary.
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Even in such cases, the policy stipulates that majority ownership and control of the investee entity must remain with resident Indian citizens or resident Indian entities owned and controlled by resident Indian citizens at all times.
The original restrictions were introduced in April 2020 through Press Note 3 during the COVID-19 pandemic to prevent opportunistic takeovers of Indian companies.
The move at the time was aimed at safeguarding Indian firms from strategic acquisitions during the pandemic-induced market downturn.
Under the PN3 framework, investments from countries sharing land borders with India, or cases where the beneficial owner of the investment was located in such jurisdictions, required prior government approval.
Additionally, any transfer of ownership of any existing or future FDI in an entity in India resulting in the beneficial ownership falling within the aforesaid jurisdiction(s) also requires government approval.
However, the broad application of these rules was seen as affecting investment flows from global private equity and venture capital funds where investors from such jurisdictions might hold small, non-controlling stakes.
According to the government, the amendments in the FDI policy aim to unlock greater FDI inflows from global funds for startups and deep techs, take forward the agenda of ease of doing business.
The changes are expected to facilitate greater participation of global funds in Indian startups and deep-technology sectors, support technology collaborations, and enable Indian companies to integrate more closely with global supply chains.
The policy change is apparently a calibrated attempt to facilitate technology and capital flows into India’s manufacturing ecosystem, particularly in sectors such as electronics components, capital goods and solar value chains where Chinese firms and investors have significant capabilities.
Easing approval timelines for such investments could help manufacturers access technology partnerships and supply-chain linkages while retaining majority Indian ownership and control.
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