The government, while notifying rules affirming prior government approval for Foreign Direct Investment (FDI) from countries sharing land borders with India, has kept the New Development Bank (NDB) or BRICS Bank out of this regime.
The notification by Department of Economic Affairs (DEA) making changes to the Foreign Exchange Management (Non-Debt Instruments) Rules has said, a Multilateral Bank or Fund, of which India is a member, shall not be treated as an entity of a particular country nor shall any country be treated as the beneficial owner of the investments of such Bank or Fund in India.”
Multilateral Immunity
The NDB was founded by Brazil, Russia, India, China and South Africa and all members agreed to hold 20% each in that bank. While the BRICS has taken on other members, their entry in the NDB is awaited.
The NDB’s portfolio in India includes over $7.5 billion in approved projects, focusing on transport, water sanitation, and clean energy. Most of it comes via debt, The bank also operated a regional office in GIFT City Gujarat.
The notification operationalises the Cabinet decision of March 10 which said that if an investing entity or persons from countries sharing land border with India hold less than 10% shares and exercise no control then they will be out of the purview of Press Note 3 of 2020.
That Press Note had put all investment from countries sharing land border with India on government approval route to prevent opportunistic takeover of Indian companies when their valuations fell at the start of Covid pandemic.
All other investments from land border countries – China, Bangladesh, Myanmar, Pakistan, Nepal and Bhutan – will continue to require government approval.
A citizen of Pakistan or an entity incorporated in Pakistan shall invest only under the Government route, in sectors or activities other than defence, space, atomic energy and such other sectors or activities prohibited for foreign investment, the notification said.
Efficiency Over Scrutiny
The cabinet in March had also opened up a fasttrack clearance mechanism for investments from land border countries in sectors like manufacturing capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer, advanced battery components, rare earth permanent magnets and rare earth processing.
This mechanism is expected to be operationalised in coming weeks.