Govt of India Changes guidelines on investments from countries sharing land border

New Delhi, Mar 10 : The Central Government today effected changes in the guidelines on investments from countries sharing land border with India (LBCs).

The changes were approved at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi here.

The existing policy has been reviewed and amended as follows:

Incorporation of the definition and criteria for determination of ‘Beneficial Owner’ (BO) –

The amendment provides for a definition and criteria for determination of Beneficial Ownership that is widely used by investing community, under the Prevention of Money Laundering Rules, 2005.

The Beneficial Ownership test shall be applied at the level of the investor entity.

Investors with non-controlling LBC Beneficial Ownership of up to 10 percent shall be permitted under the automatic route as per the applicable sectoral caps, entry routes, attendant conditions. Such investments shall be subject to the reporting of relevant information/details by the investee entity to DPIIT.

Expedited clearance of investments in specific sectors –

Proposals for LBC investments in specified sectors/activities of manufacturing in capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer, shall be processed and decided within 60 days.

CoS under the Cabinet Secretary may also revise the list of specified sectors.

In these cases, the majority shareholding and control of the Investee entity will be with resident Indian citizen(s) and/or resident Indian entity(ies) owned and controlled by resident Indian citizen(s), at all times.

Background

Earlier on April 17, 2020, the Government had amended the extant FDI Policy to curb opportunistic takeovers/acquisitions of Indian companies due to the COVID-19 pandemic.

Pursuant to that decision, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.

Additionally, any transfer of ownership of any existing or future FDI in an entity in India resulting in the beneficial ownership falling within the aforesaid jurisdiction(s) also require Government approval.

Applicability of those restrictions to cases where LBC investors may have only non-strategic, non-controlling interests was seen as adversely affecting investment flows from investors including global funds such as PE/ VC funds.