National Desk: The Union Cabinet, chaired by Prime Minister Narendra Modi, approved a significant change in the foreign investment policy. This decision relaxes the rules related to Foreign Direct Investment (FDI), especially in the case of investments from countries that share a land border with India. The government says this change will bring clarity to the investment process and strengthen the startup and manufacturing sectors in the country.

Strict rules were implemented in 2020

In 2020, during the COVID-19 pandemic, the central government issued Press Note 3, which mandated that any investment from countries sharing borders with India go through the government approval route. This rule was intended to protect Indian companies from cheap acquisitions at the time. This provision primarily applied to investments from neighboring countries, including China.

What are the provisions in the new changes?

Following the latest Cabinet decision, some significant amendments have been made to the policy. The definition of "Beneficial Owner" has been clarified. If an investor has a non-controlling stake of up to 10% in a border-sharing country, such investments may be permitted under the automatic route. Indian companies receiving investments will be required to provide relevant details to the government. This change is in accordance with the Prevention of Money Laundering Rules, 2005.

 Fast-track clearances in certain sectors

The government has also set up faster approval processes to boost investment in certain strategic manufacturing sectors.

• These areas include:
• Electronic Components
• Electronic Capital Goods
• Capital Goods
• Projects across the solar value chain such as polysilicon and wafers

The target is to decide on investment proposals in these sectors within 60 days, while ensuring that majority control of the company remains with Indian citizens or entities.

Investment and technology will get a boost

The government believes that due to the earlier system, many international private equity and venture capital funds were hesitant to invest in India as their funds comprise investors from different countries.

After the new policy:

• The investment process will be more transparent.
• Startups and deep-tech sectors will be able to get fresh capital
• Electronics and manufacturing industries will get a boost
• India's role in the global supply chain may increase

The government says that while accelerating economic development, vigilance will also be maintained on aspects related to national security.