Cabinet Eases FDI Rules for Investments from Land Bordering Countries
The revised policy defines the concept of “beneficial owner” in line with the Prevention of Money Laundering Rules, 2005, and applies the beneficial ownership test at the level of the investor entity.
60-day approval timeline introduced for proposals in select manufacturing sectors
New Delhi: The Union Cabinet, chaired by Prime Minister Narendra Modi, on Tuesday approved changes to the foreign direct investment (FDI) policy governing investments from countries sharing a land border with India, introducing clearer guidelines and a definitive timeline for approvals in critical sectors.
The revised policy defines the concept of “beneficial owner” in line with the Prevention of Money Laundering Rules, 2005, and applies the beneficial ownership test at the level of the investor entity. Under the amended guidelines, investments with non-controlling beneficial ownership of up to 10 percent from land bordering countries will be allowed under the automatic route, subject to sectoral caps and reporting requirements.
The government has also introduced a 60-day timeline for processing proposals involving such investments in specific manufacturing sectors, including capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer manufacturing. The move is aimed at enabling quicker decisions on joint ventures and technology collaborations.
Under the revised framework, majority shareholding and control of the investee entity must remain with resident Indian citizens or entities owned and controlled by them.
The policy amendment revisits the restrictions introduced under Press Note 3 of April 2020, which required government approval for investments from neighbouring countries to prevent opportunistic takeovers of Indian companies during the COVID-19 pandemic. The government said the revised guidelines are intended to address concerns that the earlier rules were affecting investment flows from global funds with indirect exposure to such jurisdictions.
Krishan Arora, partner and leader – indirect tax and India investment advisory at Grant Thornton Bharat, said the amended guidelines could facilitate greater trade and investment flows with neighbouring countries. “The revised FDI guidelines pave the way for increased trade between countries bordering India, such as China and Bangladesh, while promoting ease of doing business and boosting manufacturing in sectors like electronics and solar,” he said.
Arora added that defining the concept of “beneficial owner” is a key step that will help streamline the approval process and support the Atmanirbhar Bharat vision by encouraging local value addition and deeper integration with global supply chains.
The government said the changes are expected to improve clarity for investors, boost foreign investment in manufacturing and strengthen India’s competitiveness as a preferred investment and manufacturing destination.
