Govt open to adding more sectors under eased Press Note 3 regime, says DPIIT Secretary

Under the proposed framework, a Committee of Secretaries (CoS) headed by the Cabinet Secretary will have the authority to revise and expand the list of specified sectors where such investments can be fast-tracked.

Department for Promotion of Industry and Internal Trade (DPIIT) Secretary Amardeep Singh Bhatia, on March 11, indicated that the government could further ease the foreign investment regime under Press Note 3, saying more sectors may be added to the list where investments from land-bordering countries can be processed faster.

Speaking at a briefing, Bhatia said the government may consider adding more sectors for expedited approvals for investments coming from land-bordering countries (LBCs), except Pakistan.

““We have kept flexibility because more sectors can be added,” Bhatia said. As per the amendments in the Press Note 3 framework, cleared by the Cabinet on March 10, the government has now put in place an expedited approval process for investments from land-bordering countries, excluding Pakistan, in select strategic manufacturing sectors, with a 60-day timeline for decisions.

The broad sectors include capital goods, electronic capital goods, electronic components, polysilicon and wafer manufacturing, advanced battery components, and rare earth permanent magnets and processing.

Under the proposed framework, a Committee of Secretaries (CoS) headed by the Cabinet Secretary will have the authority to revise and expand the list of specified sectors eligible for faster approvals.

What has changed

The amendments introduce a formal definition of “beneficial owner” and streamline the approval process for certain foreign investments from land-bordering countries.

The government has decided that the beneficial ownership (BO) test will be applied at the level of the non-LBC investor entity.

Investments where non-controlling ownership in the investor entity is below 10 percent will be permitted under the automatic route, subject to prior reporting requirements to DPIIT and applicable sectoral entry conditions.

The definition of beneficial ownership will be aligned with the Prevention of Money Laundering Act (PMLA), 2002 and the rules framed under it, along with other applicable conditions.

In addition, the government has introduced a definitive 60-day timeline for processing proposals involving investments from LBC countries, other than Pakistan, in specified sectors such as capital goods manufacturing, electronic capital goods manufacturing, electronic component manufacturing, polysilicon and wafer production, advanced battery components, and rare earth processing and magnets.

The amendments also mandate that the investee entity must remain under Indian majority shareholding and control at all times.

Bhatia said the changes are expected to unlock greater foreign direct investment inflows from global funds into Indian companies.

Press Note 3, introduced in April 2020, requires government approval for foreign direct investment (FDI) from countries that share a land border with India, or where the beneficial owner of an investment is situated in or is a citizen of such a country.

The rule was brought in to prevent opportunistic takeovers of Indian companies.

India shares land borders with China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan, and investments from these jurisdictions fall under the Press Note 3 approval route.