From May 1, companies with a Chinese stake of up to 10% can invest through the automatic route. This amends a six-year policy requiring the government to approve all foreign direct investments from countries that share land borders with India. The amendments came amid concerns expressed by global investors, especially private equity firms.
The relaxed FDI rules will not apply to entities registered in China and neighboring countries
Global investor concerns have prompted the Federal Cabinet to allow companies without “significant beneficial ownership” to be allowed under the automatic route.
In line with the PMLA, the maximum significant beneficial ownership has been maintained at 10%. However, the relaxed FDI rules will not apply to entities registered in China, Hong Kong or other countries sharing land borders with India.The notification also said that any multilateral bank or fund, of which India is a member, such as the Asian Development Bank, the New Development Bank and the Asian Infrastructure Investment Bank, will not be treated as an entity of a particular country, nor will any country be treated as the beneficial owner of such bank or fund’s investments in India.
Further, the government said that transfer of “interest or right to participate” in oil fields by Indian companies to a person resident outside India will be treated as foreign investment.Through another notification, the government has allowed 100% FDI in insurance companies and intermediaries, such as brokers, third-party managers or corporate agents, while limiting investment through the automatic route to 20% in the case of Life Insurance Corporation of India.It has specified that the Chairman or Managing Director and CEO must be resident Indian citizens.
