Ease of Doing Business Reforms to Apply Prospectively, Potential Benefits for Pending Foreign Direct Investment Proposals

Press Note 3 Amendments to Facilitate Foreign Direct Investment

Key Highlights:

• The Centre's latest easing of Foreign Direct Investment (FDI) rules under Press Note 3 will apply prospectively, effective immediately.
• Pending proposals with below 10% investment from land-bordering countries may benefit from the new framework and will not require the old route.
• Sectors eligible for the 60-day expedited approval route will also be considered through the automatic route.

Background:

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Press Note 3, introduced in April 2020, required government approval for investments from countries sharing a land border with India, including China, Pakistan, Bangladesh, Nepal, Bhutan, or where the beneficial owner of the investment is located in or is a citizen of such countries.

Amendments and Clarifications:

• A definition of beneficial ownership has been introduced, allowing investments where investors from land-bordering countries hold up to 10% non-controlling ownership to proceed under the automatic route.
• An expedited approval process with a 60-day timeline has been introduced for investments from land-bordering countries (excluding Pakistan) in strategic manufacturing sectors.
• The expedited approval mechanism is limited to certain sectors and specific proposals, particularly those involving collaborations between foreign investors and Indian companies.

Sectors Covered:

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• Capital goods manufacturing
• Electronic capital goods
• Electronic component manufacturing
• Polysilicon and wafer manufacturing
• Advanced battery components
• Rare earth magnets and processing

Impact:

• The government expects the easing of norms to boost foreign investments, with around 600 applications received under Press Note 3 since the policy was introduced.
• National security checks will continue, and the relaxation does not mean security concerns are being overlooked.

Future Developments:

• The list of sectors covered under the fast-track mechanism may expand over time.
• The government will bring out a standard operating procedure to facilitate the expedited approval process.