FDI easing not for Chinese firms, to benefit entities with minority Chinese holding

New Delhi: Overseas companies having Chinese shareholding of up to 10 per cent will be eligible to invest in India under the automatic route across sectors; however, the relaxed FDI norms will not apply to entities registered in China/Hong Kong or other countries sharing land borders with India, a senior official said on Wednesday.

Earlier, foreign firms with shareholders from these land border nations owning even a single share had to seek mandatory approval to invest in India in any sector.

The Union Cabinet on March 10 made changes in the press note 3 of 2020 in this regard.

Under the press note, investors from countries sharing land borders with India had to seek mandatory approval to invest in any sector.

“All the restrictions for investors from land bordering countries (LBCs) are still applicable. There is no relaxation so far as entities or investors in LBCs are concerned. This relaxation is only for entities in non-LBCs and having beneficial owners from LBCs below 10 per cent and non-controlling stake... so there are no relaxations so far as investments from LBCs are concerned,” Joint Secretary in the department for promotion of industry and internal trade (DPIIT) Jai Prakash Shivahare told reporters here.

Shivahare further explained that if a firm from a country sharing a land border with India provides technology and holds even one per cent stake, through which it may exercise some form of control, the investment will still require approval through the government route.

As per the amended press note, investors with non-controlling LBC beneficial ownership of up to 10 per cent shall be permitted under the automatic route as per the applicable sectoral caps, entry routes, and other conditions.

Such investments will be subject only to the reporting of relevant information or details by the investee entity to the DPIIT.

The government has, however, announced an expedited clearance to foreign direct investment (FDI) proposals of companies from China and other countries sharing land borders with India.

Proposals for LBC investments in specified sectors and activities of manufacturing in capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer, advance battery components, rare earth permanent magnets and rare earth processing shall be processed and decided within 60 days.

DPIIT Secretary Amardeep Singh Bhatia said that this list can be expanded or reduced by a committee of secretaries headed by the cabinet secretary.

At present, about 600 applications are under the press note 3. When asked what would happen to those applications, the secretary said many would fall under either of the two categories - below the 10 per cent threshold and the expedited mechanism.

Those covered under the below-10 per cent limit can proceed with the investment after the notification is issued and subsequently file the required information, while those who want to come under the expedited mechanism can resubmit their

applications.

A specific mechanism has been laid down for expedited approvals to ensure that the 60-day timeline is followed, as it would provide certainty to probable investors, Bhatia said.

“Now we are providing a non-PN3 route for those which are below the threshold of ownership and control...If a company from LBC wants to invest in India, in that case, the PN3 route will apply,” he said, adding that the concept of beneficial ownership (BO) is relevant for companies that are located outside the land border-sharing nations.

He added that companies like BlackRock were seeking the easing of the press note. The benefit of the expedited process can be availed by a company outside LBCs also.