Cabinet approves changes in FDI norms for investors from countries sharing land border with India

New Delhi: The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved amendments to the guidelines governing investments from countries sharing a land border with India (LBCs), aimed at facilitating investment while maintaining safeguards for domestic companies.

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According to an official statement, the government has incorporated a definition and criteria for determining ‘Beneficial Owner’ (BO) in line with provisions under the Prevention of Money Laundering Rules, 2005. The Beneficial Ownership test will be applied at the level of the investor entity.

Under the revised norms, investors with non-controlling beneficial ownership from land-bordering countries of up to 10 percent will be permitted to invest under the automatic route, subject to sectoral caps, entry routes and other applicable conditions. However, such investments will require the investee entity to report relevant details to the Department for Promotion of Industry and Internal Trade (DPIIT).

The Cabinet has also approved expedited clearance for investment proposals from LBC investors in select manufacturing sectors, including capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer. Such proposals will be processed and decided within 60 days. The Committee of Secretaries (CoS) under the Cabinet Secretary may revise the list of specified sectors.

In these cases, majority shareholding and control of the investee entity must remain with resident Indian citizens or entities owned and controlled by resident Indian citizens at all times.

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Background

The move follows the government’s earlier amendment to the FDI policy through Press Note 3 (2020) issued on April 17, 2020, during the COVID-19 pandemic. The policy mandated that entities from countries sharing a land border with India, or investments where the beneficial owner is situated in or a citizen of such countries, could invest in India only through the government approval route. Transfers of ownership resulting in such beneficial ownership also required government approval.

However, the applicability of these restrictions to investors holding only non-strategic and non-controlling stakes was seen as impacting investment flows, particularly from global private equity and venture capital funds.

Expected benefits

The revised guidelines are expected to bring greater clarity and improve ease of doing business, while facilitating higher foreign investment. The changes are likely to help boost FDI inflows, enable access to new technologies, strengthen domestic value addition and support integration with global supply chains.

The Government said the move will also enhance India’s competitiveness as a preferred manufacturing and investment destination, support the vision of Atmanirbhar Bharat and contribute to overall economic growth.

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