India has made recent amendments to the FDI rules. This comes after a meeting of the cabinet led by PM Modi on September 18, 2020. The new rule changes the way the 2020 rule operates with respect to Press Note 3, which required government approvals for certain foreign investments made in India by companies from countries sharing a land border with India (e.g., China, Bangladesh, or Pakistan).
The new rule also creates a new “beneficial ownership” provision that allows companies with low levels of beneficial ownership (i.e., on average, less than 10%) to make investments in India without having to obtain government approval. In effect, investors will have more opportunities to make investments in India without having to obtain mandatory approvals. The FDI sectoral caps will remain in place, as will the compliance requirements. Overall, the rule is intended to provide more clarity and efficiency to FDI investments into India.
Press Note 3 changes under the India FDI rules amendment
The amendment changes the existing system put in place during the conflict between 2020 and now. Previously, to be able to invest in an adjacent nation, one would need to seek application approval from the Government, but this rule was put in place to assist existing and new limitations placed on adjacent nations, and therefore, the availability for other forms of minority interests has been significantly reduced.
The Government continues to approve non-controlling minority investments from 0% to 10%. However, all investors must report their investments to the relevant department (DPIIT). There are also many new timelines for the processing of applications. A decision will be made within 60 days, where applicable, and in particular in the areas of electronics and electronics-related products. This may be subject to revision from time to time by the appropriate authorities. As such, the intent of the Government is to attract both technology and investment capital.
Policy shift reflects economic and strategic balancing
The Indian government is trying to balance the openness of its economy with its cautious approach towards strategic issues. Currently, investments from China account for a very small portion of foreign direct investment (FDI) into India, with only 0.32% of total FDI coming from China. However, since the two countries have a large amount of trade between them, imports into India from China are far greater than the amount of goods exported to China.
As a result, India has maintained a large trade deficit with China every year. According to experts, changing the rule has reduced trade friction between India and China – one expert explained that the changes in rules will lower the barriers for “genuine investors”. There will still be protective measures in place over sensitive industries as determined by the Government of India’s policy. It is anticipated that there will be more funds entering India’s manufacturing sector now as a result of the policy; subsequently, India wants to increase the strength of its supply chains and domestic businesses by having new investments going into manufacturing in India. Analysts believe the India FDI rules amendment aims to attract investment while preserving safeguards in sensitive sectors.
For more- https://civiclens.in/category/national-news-civiclens-in/
About the Author
