The Union Cabinet, led by Prime Minister Narendra Modi, has given the green light to modifications in the rules governing investments from nations sharing borders with India. The aim is to offer clarity to investors and enhance foreign direct investment (FDI) inflows. The updated policy introduces clearer regulations for identifying the ‘beneficial owner’ of an investment and streamlines approvals in specific sectors.
Under the revised guidelines, the definition and criteria for determining a beneficial owner will now align with the framework used in the Prevention of Money Laundering Rules, 2005. The beneficial ownership assessment will be conducted at the investor entity level. Investors from border countries with non-controlling beneficial ownership of up to 10% will now be permitted to invest through the automatic route, subject to sectoral limits and other terms.
Moreover, such investments will necessitate the investee company to furnish relevant details to the Department for Promotion of Industry and Internal Trade. The Cabinet has also sanctioned expedited processing of investment proposals in designated manufacturing sectors. Investments from border countries in sectors like capital goods manufacturing, electronic components, and polysilicon production will now be reviewed and decided within 60 days.
The list of these specified sectors can be altered by the Committee of Secretaries chaired by the Cabinet Secretary. The government emphasizes that resident Indian citizens or entities owned and controlled by them must retain majority shareholding and control of the investee company consistently. These changes are part of a reassessment of restrictions imposed during the COVID-19 period through Press Note 3 (2020).
The policy aimed to prevent opportunistic takeovers of Indian firms during the pandemic. However, it was observed that the rules were impeding investment inflows from global private equity and venture capital funds where investors from these countries held only minor, non-controlling interests.
