The government has expedited the process for approving foreign direct investment (FDI) proposals requiring prior approval. It also provided a special carve-out for investors from countries sharing land borders with India, such as China, by revising the standard operating procedure (SOP) for applications involving high-priority investments for the country.
The move intends to spur capital inflows and give a fillip to the indigenisation of high-tech and new-age manufacturing.
The new SOP issued on Tuesday puts a fresh time limit of 12 weeks for deciding on FDI applications requiring government approval, while for land-border countries this period is compressed to 60 days.
Currently, under the guidelines issued in 2017, an FDI application from countries other than those sharing land borders with India is meant to be approved in 10 weeks, but security clearances could practically stretch the time period significantly.
Under the new SOP, the 12-week deadline for giving approval will be adhered to even for the security clearance from the ministry of home affairs (MHA) and approvals from the ministry of external affairs (MEA) and the Reserve Bank of India (RBI). Moreover, in case the approvals or comments aren’t received from all ministries and departments consulted on any proposal, including RBI, MHA and MEA, it shall be presumed that they have no comments to offer.
The faster approval for investments from China and other neighbours will be available only for investments in six sectors — manufacturing of capital goods; and electronic capital goods and components; polysilicon and ingot-wafer; advanced battery components; rare earth permanent magnets and rare earth processing.
Within the six broad sectors, 36 sub-sectors have been listed for quicker approvals. These include printed circuit boards, display and camera modules, lithium ion batteries, printer and scanners, energy storage systems, components for advanced call chemistry, wearables, speakers, microphones, headphones and heavy equipment for thermal, hydro and nuclear plants.
Another condition for companies with investments from countries sharing land border with India is that the majority shareholding and control of the investing entity will be with resident Indian citizens or entities owned and controlled by resident Indian citizens at all times.
The time limit for submission of comments by MHA, MEA and any other consulted ministry, department, regulator or any other stakeholders is six weeks. In the current SOP also, the timeline is six weeks for MHA to decide on the security clearance but if there was a delay then the proposal remains stuck and doesn’t go through automatically.
An additional time of two weeks will be given to the Department for Promotion of Industry and Internal Trade (DPIIT) for consideration of those proposals which are proposed for rejection or where additional conditions are proposed to be imposed.
The SOP follows a Cabinet decision of March 9 to relax the conditions governing investment from countries sharing land borders with India — China, Bangladesh, Myanmar, Bhutan, Pakistan and Afghanistan. The Cabinet decision approved amendments in Press Note 3 of 2020 that had put all investments from these countries on government approval route.
This Press Note 3 was issued in April 2020 to prevent the opportunistic takeover of Indian companies when their valuations fell during the Covid-19 pandemic. These conditions also put investments by entities where investors from land border countries had minimal stake under extra scrutiny.
The Cabinet decision also relaxed the conditions for companies where investments from land border countries was less than 10%. These investments will now be under the automatic route.