Blitz Bureau
NEW DELHI: The Union Cabinet has amended its 2020 rules that had placed restrictions on foreign direct investment (FDI) from countries that shared a land border with India, the Government announced on March 10.
The amendment now incorporates a provision of ‘beneficial ownership’ and specifies that companies with non-controlling stake belonging to entities from these countries can invest in India without first seeking Indian Government approval.
Press Note 3, issued in 2020, had specified that any entity of a country that shares a land border with India can invest in India only after securing Government approval. Earlier, this rule had applied only to entities in Bangladesh and Pakistan. The 2020 rule expanded this to the other countries that shared a land borders with India, with the biggest investor by far being China.
“The Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved changes in guidelines on investments from countries sharing land border with India (LBCs),” the Government said in a release.
“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, attendant conditions,” the Government 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 of India (DPIIT).”
Apart from these, the Government added that proposals for LBC investments in specified sectors such as the manufacture of electronic capital goods, electronic components, polysilicon and ingot-wafer “shall be processed and decided within 60 days”.
The 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 Government said.
“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 Government asserted.
It added that this would help in leveraging and enhancing India’s competitiveness as a preferred investment and manufacturing destination.
“There is a logic for this,” a senior official in the Ministry of Commerce told The Hindu. “The appetite for capital in India and the overcapacity in China presents a case to relook at the restrictions, while also maintaining our strategic considerations.”
He added that there are several sectors such as highways, bridges and other infrastructure where the strategic consideration or data sovereignty issues are not that pressing.
“China also has huge foreign exchange reserves and India can provide much better returns for their investments than the US treasury bonds that they are currently investing in,” the official said.