Government notifies FDI changes on China funds

NEW DELHI: The Centre has notified two crucial changes to foreign direct investment rules — the first relating to flows from neighbouring countries such as China and the second allowing up to 100% investment in insurance business — as it seeks to step up inflows amid a weak rupee.

Starting May 1, companies with up to 10% Chinese holding can invest through the automatic route. This amends a six-year policy that mandated govt approval for all FDI from countries that share land borders with India. The amendments came amid concerns expressed by global investors, particularly private equity firms.

Relaxed FDI rules won’t apply to entities registered in China, neighbouring nations

Concerns by global investors prompted Union Cabinet to allow companies without “significant beneficial ownership” to be permitted under the automatic route. In line with PMLA, the cap on significant beneficial ownership has been kept at 10%. However, the relaxed FDI rules will not apply to entities registered in China, Hong Kong or other countries sharing land borders with India.

The notification also said that a multilateral bank or fund, of which India is a member, such as ADB, NDB and AIIB, will not be treated as the entity of a particular country, nor shall any country be treated as the beneficial owner of investments of such bank or fund in India.

Further, transfer of “participating interest or right” in oil fields by Indian companies to a person resident outside India will be treated as foreign investment, govt said.

Through another notification, govt allowed 100% FDI in insurance companies and intermediaries, such as brokers, third-party administrators or corporate agents, while limiting investment through the automatic route at 20% in the case of Life Insurance Corporation of India.

It specified that either the chairman or MD and CEO need to be resident Indian citizens.


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