New Delhi [India], March 10 : In a significant decision, the Union Cabinet chaired by Prime Minister Narendra Modi, has approved changes in guidelines on investments from countries sharing land border with India (LBCs), including China.
An official release said on Tuesday that the Cabinet approved changes in FDI policy to provide for a definitive timeline for investments in critical sectors requiring approval under PN3 (Press Note 3).
It said 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.
An expeditious decision in 60 days would help companies enter into collaborations to expand manufacturing in India, the release said.
It said a 60-day decision or approval timeline would help companies enter into joint ventures to access technologies, and integrate with global supply chains
The changes in FDI policy for investments from Land Bordering Countries will help manufacturing in electronic components, capital goods and solar cells, the release said.
The existing policy has been reviewed and amended, and it includes the incorporation of the definition and criteria for the determination of 'Beneficial Owner' (BO) and expedited clearance of investments in specific sectors.
The amendment provides for a definition and criteria for the determination of Beneficial Ownership that is widely used by investing community, under the Prevention of Money Laundering Rules, 2003.
The Beneficial Ownership test shall be applied at the level of the investor entity, the release said.
Investors with non-controlling LBC Beneficial Ownership of up to 10 per cent shall be permitted under the automatic route as per the applicable sectoral caps, entry routes, and attendant conditions.
Such investments shall be subject to the reporting of relevant information and details by the investee entity to DPIIT.
Under the expedited clearance of investments in specific sectors, proposals for LBC investments in specified sectors or activities of manufacturing in capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer, shall be processed and decided within 60 days.
CoS (Committee of Secretaries) under the Cabinet Secretary may also revise the list of specified sectors.
"In these cases, the majority shareholding and control of the Investee entity will be with resident Indian citizen(s) and/or resident Indian entity(ies) owned and controlled by resident Indian citizen(s), at all times," the release said.
In order to curb opportunistic takeovers or acquisitions of Indian companies due to the COVID-19 pandemic, the central government amended the FDI policy vide Press Note 3 in April 2020 under which an entity of a country, sharing land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
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 require Government approval.
Press Note 3 (2020) was enforced through Foreign Exchange Management (Non-Debt Instruments) Amendment Rules 2020 dated April 22, 2020.
The release said that the applicability of PN3 restrictions to cases where LBC investors may have only non-strategic, non-controlling interests was seen as adversely affecting investment flows from investors, including global funds such as PE/ VC funds.
"It is expected that the new guidelines will provide clarity and ease of doing business in India, and facilitate investments which can contribute towards greater FDI inflows, access to new technologies, domestic value addition, expansion of domestic firms and integration with global supply chain," the release said.
"This would help in leveraging and enhancing India's competitiveness as a preferred investment and manufacturing destination. Increased FDI inflows would supplement domestic capital, support the objectives of Atmanirbhar Bharat, and accelerate overall economic growth," it said.
The decision has come amid the West Asia crisis and geopolitical tensions.
Sources earlier said that the government was considering change in FDI norms for countries having land borders with India to boost investments in non-sensitive sectors
They said review was driven partly by India's increasing demand for capital to support infrastructure and manufacturing growth, as well as the presence of excess production capacity among some global companies.
The sources had said that investments in non-sensitive infrastructure sectors, such as highways and bridges, could potentially provide mutual economic benefits.