The amended foreign direct investment (FDI) policy guidelines have allowed proposals for investments from China and other land-border countries to include advanced battery components, rare earth permanent magnets, rare earth processing sectors, whose applications will be processed and decided within 60 days.
Officials expect the move to boost flow of foreign capital into the country.
“We would soon be issuing a detailed list of products,” Jai Prakash Shivahare, joint secretary, DPIIT told reporters.
The announcement came a day after the Union Cabinet approved amendments to Press Note 3 allowing 60-day clearance to investment up to 49% in select manufacturing sectors – capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer.
Shivahare said advanced battery components, rare earth magnets and processing will also be included in the list for expeditious decision.
Officials said defining “beneficial ownership” in the amended PN 3 will allow overseas entities having less than 10% shareholding from China or from any other land border country (LBC) to invest in India under the automatic route across sectors.
However, this relaxation will not apply to entities registered in LBCs.Earlier, foreign firms having even a single shareholder from LBCs had to seek mandatory approval to invest in India in any sector, stalling several investment proposals. They will now just need to furnish details of the investment for information. Around 600 such applications are pending for approval and with the changes, many of them are expected to get the government’s nod.
Officials also said that while the relaxation is prospective in nature, some applications that are pending and have less than 10% investment from companies from non-LBS countries shall be permitted under the automatic route as per the applicable sector entry routes, and subject to prior reporting requirements to the Department for Promotion of Industry and Internal Trade (DPIIT).
“We are opening in a calibrated manner…this will reduce our import dependence, bring a lot of certainty. There was a lot of interest in investment in India. We expect investment will increase with the easing of these requirements,” said Amardeep Singh Bhatia, DPIIT secretary, adding that global funds had sought the relaxations.
On the criteria followed to identify the specified sectors for the time-bound mechanism, Bhatia said the government selected these areas because of the need to strengthen domestic manufacturing ecosystems, and that the list of sectors could increase over time. Based on domestic manufacturing needs, the government will add more categories to the list of sectors where investment proposals from LBCs must be processed within 60 days.
Restrictions on LBC remain
The government said all the restrictions for investors from land bordering countries (LBCs) are still applicable.
“There is no relaxation so far as entities or investors in LBCs are concerned. This relaxation is only for entities in non-LBCs and having beneficial owners from LBCs below 10% and non-controlling stake,” said Shivahare.
He further explained that if a firm from a country sharing a land border with India provides technology and holds even one per cent stake, through which it may exercise some form of control, the investment will still require approval through the government route.
Expedited approval mechanism is limited to certain sectors and specific proposals, especially those involving collaborations and joint ventures between foreign investors and Indian companies.
A committee of secretaries headed by the cabinet secretary can make changes in this sectoral list. On the pending 600 applications, he said many would fall under either of the two categories – below the 10% threshold and the expedited mechanism.
A specific mechanism has been laid down for expedited approvals to ensure that the 60-day timeline is followed, as it would provide certainty to probable investors, Bhatia said.
He said a portal was being prepared so that applicants can file the information and go ahead with their investments.
“Allowing limited non-controlling investment while retaining safeguards on strategic sectors attempts to balance economic pragmatism with national security concerns,” said Moin Ladha, Partner at Khaitan & Co.
Ladha said the move is also closely aligned with India’s manufacturing ambitions, particularly in sectors such as electronics, capital goods and solar supply chains where collaboration, capital and technology partnerships can help strengthen domestic capacity.
Beneficial ownership
Bhatia added that the beneficial ownership definition is not sector-specific and “we have just defined it now.” It is relevant for companies that are located outside the land border-sharing nations. “If 10% beneficial ownership and control are satisfied then they don’t need to follow the PN3 route,” Bhatia said.
He added that funds such as BlackRock had sought the easing of the PN3. This is key as companies like Blackrock, Sony, Siemens, Schneider having even a single share owner in LBCs had to take PN-3 route. The beneficial ownership test would be applied at the level of the non-LBC investor entity, whereas the test of control of the company would be as per PMLA rules.
Security priority
Though the procedures are being simplified, the secretary insisted that national security checks will continue.
“In the expedited process, some steps have been done away with…but broadly, as far as the security clearances are required, political clearance is required, that process will remain in place,” the secretary said.
Stressing that opening up doesn’t mean concerns about security go away in all cases, Bhatia said, “We are opening up in a calibrated manner, in non-strategic sectors.” “We were getting queries from investors keen to invest as those with even 1% share in LBCs had to take this route.”