India tightens FDI rules for Pakistan, other land-border countries
What's the story
India has tightened its foreign direct investment (FDI) norms for countries sharing a land border, with specific provisions for Pakistan. The amended rules, issued by the Ministry of Finance on May 2, mandate that any individual or entity registered in Pakistan can invest in India only after obtaining government approval. The new framework also prohibits such investments in sensitive sectors like defense, space, and atomic energy.
Expanded regulations
Extension to all countries sharing land border
The revised rules also extend the government approval requirement to all countries sharing a land border with India. This means that any entity or citizen from such a country, or where the beneficial owner of an investment into India is a citizen of such a country, can invest only after obtaining government approval.
Information
Subsequent ownership transfers also require approval
The new rules also clarify that any subsequent transfer of ownership that results in beneficial ownership falling under these restrictions will require prior government approval. However, multilateral institutions will not be treated as entities of a particular country.
Past measures
Foreign investment rules tightened in April 2020
India had earlier tightened foreign investment rules in April 2020, mandating government approval for investments from countries sharing land borders. The move was notified by the Department for Promotion of Industry and Internal Trade (DPIIT) through amendments to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. The 2020 revision brought countries like China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, and Afghanistan under this government route.
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Separate policy move on insurance sector
The latest notification comes with a separate policy move allowing 100% FDI in insurance companies under the automatic route. However, Life Insurance Corporation of India (LIC) will continue to operate under a separate framework with foreign investment capped at 20% under the automatic route.