The Union Cabinet in its meeting chaired by Prime Minister Narendra Modi on Tuesday approved changes in guidelines on investments from countries sharing land borders with India – relaxing a key criterion, and setting itself a deadline for approvals.
The amendments approved in the FDI policy “aim to open greater inflows of global funds to startups” and “advance the agenda of ease of doing business,” a government press release said.
The two major decisions include changing the rule for determining “beneficial owner” (BO) as per the Prevention of Money Laundering Rules 2003; Setting a deadline of 60 days for a decision on investment proposals.
What do the two decisions say?
Now, from the Land Border Countries (LBCs), investors with non-controlling beneficial ownership of up to 10% in any Indian company are allowed to invest “under the automatic route”, subject to caps and conditions applicable for specific sectors.
Earlier, with an aim to curb opportunistic takeovers or takeovers of Indian companies due to the Covid-19 pandemic, the government had amended the FDI policy “An entity or person in a country that shares a land border with India can invest only through the government route. Transfer of ownership also requires government approvals.”
Now, for a share of up to 10%, the mandatory government route rule has been removed.
The Cabinet also decided that proposals for such investments in “specific manufacturing sectors or activities in capital goods, electronic capital goods, electronic components, polysilicon and alloy wafers” will be processed within 60 days.
In these cases, the majority shareholding and control of the investee entity will be “with the resident Indian national(s) and/or entities owned and controlled by the resident Indian national(s), at all times”.
Reasoning and benefits
“The new guidelines are expected to provide clarity and ease of doing business in India, and facilitate investments that can contribute to increased FDI inflows, access to new technologies, local value addition, expansion of local businesses and integration with the global supply chain,” the press note said.
“This would help leverage India’s competitiveness and enhance it as a preferred destination for investment and manufacturing. Increased FDI inflows would complement domestic capital, support the Atmanirbhar Bharat goals, and accelerate overall economic growth,” he added.
