Modi government eases FDI via automatic route for these firms
What's the story
The Indian government has amended the Foreign Exchange Management Rules, allowing foreign companies with a Chinese or other land-bordering country (LBC) shareholding of up to 10%, to invest in India through the automatic route. The move comes after a Cabinet decision aimed at easing FDI norms for investments from LBCs. It is primarily aimed at boosting manufacturing in electronic components, capital goods, and solar cells.
Rule amendment
New definition of beneficial ownership
The amended rules introduce a new definition of beneficial ownership, in line with the Prevention of Money Laundering Rules, 2005. Under this revised framework, the test for beneficial ownership will be applied at the investor entity level. Investments with non-controlling LBC ownership up to 10% will now be allowed under the automatic route, subject to sectoral caps and conditions. Investee companies are required to report relevant details to DPIIT.
Exclusions
Exemptions and clarifications
The relaxation of FDI rules does not apply to entities incorporated in China, Hong Kong, or other LBCs. Previously, even a small shareholding from these jurisdictions required mandatory government approval. Now, the restriction is specifically linked to beneficial ownership. The notification also clarified that multilateral banks/funds of which India is a member will not be treated as entities of any specific country for investment purposes.
Processing
Strategic manufacturing sectors
The Cabinet has also directed that proposals involving LBC investments in strategic manufacturing sectors like capital goods, electronic components, polysilicon and ingot-wafer should be processed within 60 days. In all such cases, the majority ownership and control must remain with resident Indian citizens or Indian-owned entities. This is part of the government's effort to facilitate foreign investment while ensuring national security interests are safeguarded.