New Delhi, March 10 (IANS) The Union Cabinet, chaired by Prime Minister Narendra Modi, on Tuesday approved changes in the guidelines governing investments from countries that share land borders with India, aiming to provide clarity to investors and boost foreign direct investment (FDI) flows.

The government said the existing policy has been reviewed and amended to introduce clearer rules on determining the ‘beneficial owner’ of an investment and to streamline approvals in certain sectors.

Under the revised guidelines, the definition and criteria for determining a beneficial owner will now align with the framework used under the Prevention of Money Laundering Rules, 2005. The beneficial ownership test will be applied at the level of the investor entity.

According to the government, investors from land border countries with non-controlling beneficial ownership of up to 10 per cent will now be allowed to invest through the automatic route, subject to sectoral caps and other conditions.

However, such investments will require the investee company to report the relevant details to the Department for Promotion of Industry and Internal Trade.

The Cabinet also approved faster processing of investment proposals in specific manufacturing sectors.

Investments from land border countries in areas such as capital goods manufacturing, electronic capital goods, electronic components, polysilicon and ingot-wafer production will now be processed and decided within 60 days.

The list of these specified sectors can also be revised by the Committee of Secretaries headed by the Cabinet Secretary.

In such cases, the government said that majority shareholding and control of the investee company will remain with resident Indian citizens or entities owned and controlled by them at all times.

The move comes as part of a review of the restrictions introduced during the COVID-19 period through Press Note 3 (2020).

That policy had mandated that entities from countries sharing land borders with India, or where the beneficial owner was from such countries, could invest in India only through the government approval route.

The measure was originally introduced to prevent opportunistic takeovers of Indian companies during the pandemic.

However, the government later found that the rules were also affecting investment flows from global private equity and venture capital funds where investors from these countries held only small, non-controlling stakes.

–IANS

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