A day after the Cabinet cleared the changes to foreign direct investment (FDI) norms related to land bordering countries (LBC), the Department for Promotion of Industry and Internal Trade of India (DPIIT) has clarified that entities “registered” in China and Hong Kong and countries sharing land borders with India will continue to need prior government approval in case they want to invest in India. This relaxation is only for entities in non-LBCs having beneficial owners from LBCs below 10% and with a non-controlling stake, government officials said.
DPIIT officials said the changes in the press note 3 (PN3) is targeted at easing investment regulations for global investors such as BlackRock and Carlyle, which were forced to take
government approval even if they had a negligible Chinese shareholding.
“In the original PN3, there are two parts to the regulation. One is the entities which are resident in China and other LBCs. The second is entities located outside the land bordering countries. As far as the second part is concerned, that is where the concept of beneficial ownership is relevant. The earlier regulation was that any companies with a single share ownership from LBC entities were required to follow the PN3 route, which meant government approval. With the beneficial ownership contours coming in, if they are below the threshold, they need not follow the PN3 route. This was an issue pointed out by several funds, including Blackrock and Carlyle,” DPIIT Secretary Amardeep Singh Bhatia said.
“The concept of beneficial ownership for entities which are resident in China and other LBCs is not relevant because the requirement is for being resident in that country. Once that condition is set aside, the other is not relevant. So, since that entity is resident in a land bordering country and if it wants to invest in India, the PN3 route will apply. What this amendment will do is certain select sectors, for these companies that wish to have a partnership for a joint venture (JV) with an Indian company, in which case an expedited approval procedure is available. The PN3 regulations have not been done away with, it has been made easier, and the sectors have been laid down with delegation to the committee of secretaries,” Bhatia said.
Bhatia added that the 60-day expeditious approval for the select sectors is available to the LBC countries resident entities, as well as the non-LBC resident entities or persons which do not get exempted on account of beneficial owners. The government, in its Tuesday decision, defined the concept of ‘beneficial ownership’ for investors from land-border sharing countries, in line with money laundering rules.
“The Beneficial Ownership test shall be applied at the level of the investor entity. Investors with non-controlling LBC (land bordering countries) Beneficial Ownership of up to 10% shall be permitted under the automatic route as per the applicable sectoral caps, entry routes, and attendant conditions. Such investments shall be subject to the reporting of relevant information/details by the investee entity to DPIIT,” the Cabinet said in a statement.
DPIIT also said the easing of FDI norms for countries sharing a land border with India will include rare earth magnets, imports of which have been under strain due to Beijing’s blockade amid US-China trade tensions.
“Expeditious decision for investments from LBC (other than Pakistan) in notified sectors include capital goods manufacturing, electronic capital goods manufacturing, electronic component manufacturing, polysilicon (and ingot) wafers, advanced battery components, rare earth permanent magnets, rare earth processing,” the DPIIT said.
ExplainedWhat is ‘beneficial ownership’
The Centre, in its Tuesday decision, defined ‘beneficial owner’ for investors from land-border sharing countries, in line with money laundering rules. Investors with non-controlling LBC Beneficial Ownership of up to 10% will be permitted under automatic route as per the applicable rules, the Cabinet said
This comes after the Centre, in December last year, approved a Rs 7,280-crore scheme to promote the manufacturing of rare earth permanent magnet (REPM) in India. These high-strength REPMs are crucial for a wide range of technologies – from electric vehicles and renewable energy systems to electronics, aerospace, and defence applications.
DPIIT Secretary Amardeep Singh Bhatia said that the amendment will help unlock greater and easier FDI inflows from global funds for Indian firms, including startups and deep techs, and take forward the agenda of ease of doing business
“Definitive time-limit of 60 days for decision in specified sectors will assist Indian companies to raise foreign capital easily, enter into collaborations and joint ventures which help access new and advanced technologies, strengthen domestic value addition and manufacturing, reduce import dependencies and enhance exports,” Bhatia said.
He added that clarity to investors and Indian companies in their investment strategies and compliances and strategic interests remains safeguarded through appropriate guardrails.
Easing of FDI norms for countries sharing a land border with India will include rare earth magnets, said DPIIT. File photo 
Share
