India’s Cabinet has approved amendments to foreign direct investment (FDI) guidelines for countries sharing land borders with India, in a meeting chaired by Prime Minister Narendra Modi.
Under the revised policy, investors from these countries, including China, are permitted automatic approval for non-controlling beneficial ownership stakes of up to 10% in Indian entities, within relevant sectoral caps and existing entry conditions.
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Investee companies must report relevant investment details to the Department for Promotion of Industry and Internal Trade (DPIIT).
The new rules also specify that proposals from bordering countries for investments in manufacturing sectors such as capital goods, electronic components, electronic capital goods, polysilicon and ingot-wafer will be processed within 60 days.
The list of eligible sectors may be updated by the Committee of Secretaries under the Cabinet Secretary.
In these specified sectors, citizens or entities owned and controlled by resident Indian citizens must hold the majority shareholding and control in the investee firm at all times.
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By GlobalDataThese changes follow a review of earlier restrictions introduced by Press Note 3 in April 2020.
That policy required government approval for all FDI from countries sharing a land border with India or where the beneficial owner of an investment was based in such countries, reported Bloomberg.
The measures were implemented to prevent opportunistic takeovers during the Covid-19 pandemic and applied to both new investments and changes in beneficial ownership.
The new guidelines introduce a definition and criteria for determining ‘Beneficial Ownership’ aligned with anti-money laundering regulations.
Officials expect that these amendments will bring greater clarity to FDI rules, support investment flows into key manufacturing sectors, facilitate access to technology, enhance domestic value addition, expand Indian firms’ operations, and assist their integration into global supply chains.
India initially tightened scrutiny on FDI from neighbouring countries amid deteriorating relations with China.
However, with recent signs of improving economic ties and renewed international trade pressures, Indian authorities have moved to streamline certain aspects of investment regulation while maintaining oversight in critical sectors.
