The change in regulations governing investment from countries sharing land borders with India will help speed up the clearance of a few proposals from among the 600 applications that were awaiting approvals, officials said Wednesday.
Those applications that would sail through are in the category where the extent of ownership by entities from Land Border Countries (LBCs) is less than 10%. Many investment vehicles of global funds like Carlye and Blackrock and multinationals would fall in that category.
Due to the regulations brought in through press Note 3 of 2020 by the Department for Promotion of Industry and Internal Trade (DPIIT) even global funds and subsidiaries of multinationals where entities from land border countries had a minimal stake had to go through an elaborate approval route.
For companies that are not resident of the countries sharing borders with India but persons or entities from these countries have up to 10% beneficial ownership which do not exercise control, the “automatic route” for FDI will be opened.
Under the existing regime in cases where even one share was held by the persons and entities from countries sharing land borders with India and even Hong Kong, the elaborate approval process, including political and security clearance, is required.
“This issue was pointed out by many funds, for example Blackrock, Carlyle and other companies where there was small ownership of LBCs. Those are the companies who will be able to find it easier to navigate coming into India,” secretary in the DPIIT Amardeep Singh Bhatia said.
“With this beneficial ownership coming in, if they are below the threshold then they do not need to follow the PN3 route. We expect investments to increase with the easing of these requirements,” the secretary said.
“While the March 10 press release introduces limited easing, such as directing the beneficial ownership test at investor entity level from land border countries, rather than tracing ownership across upstream layers, the restrictive 10% cap would continue to limit the policy’s capacity to meaningfully revive investment flows, as the core requirement of Government approval for larger investments, remains unchanged,” M&A Tax Partner at Nangia Global Sandeepp Jhunjhunwala said.
The cabinet on Tuesday also relaxed the approval process with a fast track 60-day clearance for companies from neighbouring countries for manufacturing capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer. The list can be revised by the Committee of Secretaries under Cabinet Secretary. However, in those cases too the control and majority ownership of Indian operations should remain with the Indian companies.
Rare earth permanent magnets and rare earth processing would also be among the sectors that will be given clearance in 60 days, joint secretary in DPIIT Jai Prakash Shivahare said.
“What this amendment is doing is that in certain select sectors, for these companies who want to have partnership, have a joint venture with an Indian company then in that case that can be expedited. Approval process is available. It is not being done away with, it is being made easier,” Bhatia added.
“The changes will unlock greater and easier FDI inflows from global funds for Indian companies including startups and deep techs,” Shivahare said.