New Delhi: The Union cabinet Tuesday approved relaxations in guidelines on investments from countries sharing land borders with India (LBCs), a move that is being seen as mainly targeted towards China amid New Delhi’s thawing ties with Beijing.
In April 2020, India had amended its Foreign Direct Investment (FDI) policy via ‘Press Note 3’ (PN3), making prior government approval mandatory for foreign investment in any sector from LBCs—China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan. These restrictions were brought in to “curb opportunistic takeovers/acquisitions of Indian companies due to the Covid-19 pandemic”.
Following the amendment, any country that shared a land border with India, or any investor situated in or a citizen of any such country, could invest only via the government route. Additionally, transfer of ownership of any existing or future FDI in an entity in India resulting in the beneficial ownership falling within this jurisdiction also required government approval.
The need to amend the guidelines was necessitated as enforcement of PN3 restrictions in cases where LBC investors may have only non-strategic, non-controlling interests was seen as adversely affecting investment flows including private equity and venture funds.
The revised guidelines approved by the cabinet will now allow investors from countries sharing land border with India to invest up to 10 percent under the automatic route as per the applicable sectoral caps.
The new amendment also provides for a definition and criteria for determination of ‘Beneficial Ownership’ that is widely used by the investing community, under the Prevention of Money Laundering Rules, 2005.
“The Beneficial Ownership test (to check for authenticity) shall be applied at the level of the investor entity. Investors with non-controlling LBC Beneficial Ownership of up to 10 percent shall be permitted under the automatic route as per the applicable sectoral caps, entry routes, attendant conditions,” a government statement said.
Such investments shall be subject to the reporting of relevant information/details by the investee entity to the Department for Promotion of Industry and Internal Trade (DPIIT).
The new changes will also pave the way for expedited clearance of investments in specific sectors.
“Proposals for LBC investments in specified sectors/activities of manufacturing in capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer, shall be processed and decided within 60 days,” the statement said.
The Committee of Secretaries headed by 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 statement said.
Withdrawing the restrictions on FDI was among a slew of recommendations made by the high-level committee on investments headed by NITI Aayog member Rajiv Gauba last October.
(Edited by Gitanjali Das)