Press Note 3, which made prior government approval mandatory for foreign direct investment (FDI) from bordering countries, was introduced in April 2020 to curb opportunistic takeovers of domestic companies during the pandemic — primarily targeted at those originating from China.
The government is examining feasibility of a de minimis limit, said the people cited. Investments below this may qualify for automatic approval, rather than requiring case-by-case clearance.
‘No Rescinding Press Note 3’
The move is aimed at reducing compliance burdens and speeding up small-ticket investments, particularly in sectors where funding needs are immediate and sensitive technologies are not involved. “We are examining whether there could be any openings to make it faster and easier to get a yes or a no on investments into India,” a top government official told ET. “We are also examining whether we could have any de minimis to permit larger funds that have some small element which has come to our attention.”
Such a threshold would potentially exclude smaller investments, likely defined either by percentage stake or monetary value, from the mandatory approval route. A final call will be taken after weighing all concerns, including security considerations, said the people cited. India had made prior government approval mandatory irrespective of sectoral caps by amending Press Note 3 six years ago.
Investment proposals from countries that share a border are subject to scrutiny by the ministries of home and external affairs. Adverse reports in terms of links to the Chinese Communist Party or the People’s Liberation Army tend to get held up. Any transfer of ownership of any existing or future FDI in an entity in India resulting in changes in beneficial ownership in these jurisdictions also requires government approval.The Centre said it has been accommodative on visas. “In order to support the Make in India initiative, the government authorises the issue of business visas to foreign nationals, including to Chinese nationals (specialists/engineers/technical people), being engaged by Indian companies,” the external affairs ministry had told Parliament last week. “Government of India has generally followed a facilitative approach towards business and employment visas, within the bounds of the relevant rules and policy.”
Bypassing Delays
Under the existing framework, any FDI proposal from entities based in or beneficially owned by citizens of bordering countries must be routed through the government approval process, irrespective of investment size. Industry executives have argued that this has led to delays even in cases involving minor stake purchases or followon investments in already-approved ventures.
The official cited above said Press Note 3 won’t be rescinded in any event. “We have a cautious approach about the nature of investments that come into the country as we want to ensure there are no opportunistic takeovers of our critical sectors. And, therefore, Press Note 3 will continue,” the official said.
The review of Press Note 3 comes amid geopolitical changes. Ties between India and China have eased since last year with bilateral visits of ministers and bureaucrats, both sides agreeing to start direct flights and allow tourists, besides stepping up dialogue to resolve border disputes, a process accelerated by US President Donald Trump’s tariff regime.