The central government took a big decision on Tuesday (10 March). The government has approved important changes in the Foreign Direct Investment (FDI) policy regarding investments coming from countries sharing land borders with India. This decision was taken in the Union Cabinet meeting chaired by Prime Minister Narendra.
The central government says that this will encourage foreign investment in startup, deep-tech and manufacturing sectors and strengthen India’s participation in the global supply chain. Apart from China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan share their borders with India.
The government had made rules in 2020
The Cabinet has made partial amendments in the strict provisions implemented under Press Note-3 (2020). During the Covid-19 pandemic, in April 2020, the government had made a rule that if any company or investor from any country bordering India wants to invest in India, it would be mandatory for it to take government approval (Government Route). Its purpose was to prevent cheap acquisitions of Indian companies during the pandemic.
What’s in the new policy
Now a clear definition of Beneficial Owner i.e. actual owner has been added in the new policy. This definition will be in accordance with the Prevention of Money Laundering Rules, 2005. According to the new provision, if an investor from a country sharing a land border has a non-controlling stake of up to 10 percent in an investor, then such investment can be allowed under the automatic route. However, for this the concerned Indian company will have to report all the details related to the investment to the government.
The government has also set a fast-track approval process for investment in some strategic manufacturing sectors. It will be mandatory to approve or decide within 60 days the proposals coming in areas like electronic components, electronic capital goods, capital goods, polysilicon and ingot-wafer. In these projects, majority control of the company will remain with Indian citizens or Indian institutions.
investment process will be faster
The government believes that due to existing regulations, many global investment funds—especially private equity and venture capital funds—were reluctant to invest in India, as their investment framework includes investors from multiple countries. The new system will provide clarity to such investments and speed up the investment process.
- In 2020, strict rules were imposed on investment from neighboring countries including China.
- Now investments with non-controlling stake up to 10% can get the automatic route.
- Investment proposals in some manufacturing sectors will be approved or rejected within 60 days.
- Objective: To increase investment, bring technology and connect India with the global supply chain.
Foreign investment will increase in India
According to the central government, these changes will increase foreign investment in India, provide access to new technologies and expand the capacity of domestic companies. Also, manufacturing in sectors like electronics, capital goods and solar value-chain will get a boost and India will get a strong position in the global supply chain. The government says that increasing foreign investment will also accelerate the goal of self-reliant India and support the economic growth of the country.