Daijiworld Media Network - New Delhi
New Delhi, May 2: The Ministry of Finance has notified amendments to the Foreign Exchange Management Rules, allowing overseas companies with up to 10 per cent shareholding from China or other land-bordering countries to invest in India under the automatic route.
The move follows a Cabinet decision aimed at easing foreign direct investment (FDI) norms for land-bordering countries (LBCs) and boosting manufacturing in key sectors such as electronic components, capital goods, and solar cells.
Under the revised framework, the definition of beneficial ownership has been aligned with the Prevention of Money Laundering Rules, 2005. The updated norms clarify that the beneficial ownership test will apply at the investor entity level, and investments with non-controlling LBC ownership of up to 10 per cent will be permitted under the automatic route, subject to sectoral caps and conditions.
Countries sharing land borders with India include China, Pakistan, Bangladesh, Nepal, Myanmar, Afghanistan, and Bhutan.
However, the relaxation does not extend to entities incorporated in China, Hong Kong, or other LBCs. While earlier even minimal shareholding from such jurisdictions required prior government approval, the revised norms now link restrictions specifically to beneficial ownership.
The notification also clarified that multilateral institutions in which India is a member will not be treated as entities of any specific country, and no single nation will be considered the beneficial owner in such cases.
At the same time, investments involving direct or indirect LBC ownership will remain subject to reporting requirements prescribed by the Reserve Bank of India.
Separately, the Cabinet has directed that proposals involving LBC investments in key manufacturing segments — including capital goods, electronic components, polysilicon, and ingot-wafer — be processed within 60 days. In such cases, majority ownership and control must remain with Indian residents or domestically owned entities.
The policy shift is expected to streamline investment flows while maintaining safeguards in sensitive sectors.