Government relaxes norms for Chinese FDI, clearance in 60 days for select sectors

NEW DELHI: The Union cabinet on Tuesday eased norms governing investments from China and other countries sharing a land border with India, to provide for faster approvals in "strategic sectors", while fast-tracking inflows when the entity from across the border holds under 10% and is a non-controlling shareholder.

The govt has amended Press Note 3, issued in 2020 to prevent takeover of Indian firms by Chinese entities during Covid-19 economic crisis.

In a statement, govt said that in sectors such as capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer, proposals will be cleared within 60 days, while ensuring that majority shareholding and control remains with resident Indian citizens or entities controlled by them. The list of sectors can be expanded, it said.

The move comes amid a push to create domestic manufacturing capability in sectors such as electronic components, where even Printed Circuit Boards in smartphones and other goods have to be imported from China.

New norms to boost ease of biz’
Several Chinese companies are keen to invest via the joint-venture route, but the govt has been going slow due to lack of policy clarity on beneficial ownership. The cabinet decision is expected to clear the air for investors as well as the bureaucracy.

Similarly, six years after the checks on Chinese FDI were introduced, govt said entities with non-controlling beneficial ownership of up to 10% will be allowed to invest through the automatic route, subject to sectoral caps and other conditions.

“It is expected that the new guidelines will provide clarity and ease of doing business in India, and facilitate investments which can contribute towards greater FDI inflows, access to new technologies, domestic value addition, expansion of domestic firms and integration with global supply chain. This would help in leveraging and enhancing India's competitiveness as a preferred investment and manufacturing destination,” the press release said.

Industry representatives are upbeat. “Aligning the definition of beneficial ownership with the PMLA threshold of a 10% controlling stake provides investors with a clearer and more predictable compliance framework, which should boost confidence, particularly among PE and VC funds,” said Sunil Kumar, a partner at consulting firm EY India.