Cabinet eases Press Note 3 rules, sets 60-day timeline for investment approvals from land-bordering countries

Representative photo

• Cabinet updates FDI rules for neighboring countries' investments
• Automatic route ownership threshold set at 10%
• 60-day approval for certain manufacturing investments expedited

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The Union Cabinet has approved changes to India’s foreign direct investment (FDI) policy governing investments from countries that share a land border with India, introducing clearer rules on beneficial ownership and a defined timeline for approvals in key manufacturing sectors.

The decision, taken by the Cabinet chaired by Prime Minister Narendra Modi, seeks to provide clarity on Press Note 3 (PN3) provisions while facilitating investment flows into strategic manufacturing sectors and technology-intensive areas. According to the government statement issued on March 10, the policy changes are intended to support domestic manufacturing and improve ease of doing business.

“The amendments in the FDI Policy aim to unlock greater FDI inflows from global funds for startups and deep techs, take forward the agenda of ease of doing business,” the government statement said.

Beneficial ownership threshold introduced

A key change in the revised framework is the introduction of a definition and criteria for determining “beneficial owner”, which will now align with the definition used under the Prevention of Money Laundering Rules, 2005.

“The amendment provides for a definition and criteria for determination of Beneficial Ownership that is widely used by investing community, under the Prevention of Money Laundering Rules, 2005,” the statement said.

Under the revised rules, investments where the beneficial ownership from a land-bordering country is non-controlling and does not exceed 10 percent will be permitted through the automatic route, subject to sectoral caps and other conditions. The government said such investments will require disclosure by the investee company to the Department for Promotion of Industry and Internal Trade (DPIIT).

“The Beneficial Ownership test shall be applied at the level of the investor entity,” the statement said.

Faster approvals for select manufacturing sectors

The Cabinet has also approved an expedited approval mechanism for investment proposals from land-bordering countries in specified manufacturing sectors.

The government said a 60-day decision timeline for approvals will help companies enter joint ventures to access technologies and integrate with global supply chains. The timeline is expected to help companies move faster on technology partnerships and manufacturing expansion.

“Expeditious decision in 60 days to help companies enter into collaborations to expand manufacturing in India,” the statement said.

However, the revised framework maintains safeguards to ensure domestic control in sensitive sectors. In cases eligible for fast-tracked approval, the majority shareholding and control of the investee entity must remain with resident Indian citizens or entities owned and controlled by them at all times.

PN3 introduced during pandemic

Press Note 3 was introduced in April 2020 during the COVID-19 pandemic to prevent opportunistic acquisitions of Indian companies when asset valuations were under pressure.

The rule mandated that any investment from countries sharing a land border with India — including China — must receive government approval. It also required approval if the beneficial owner of an investment was located in such a country.

The government said the earlier framework was affecting investment inflows in cases where investors from land-bordering countries held only minority or non-strategic stakes, including through global private equity and venture capital funds.

“Applicability of PN3 restrictions to cases where Land Bordering Countries' investors may have only non-strategic, non-controlling interests was seen as adversely affecting investment flows from investors including global funds such as PE/VC funds,” the statement said.

Expected impact on manufacturing

The government expects the revised policy to support investment in emerging manufacturing sectors such as electronic components, capital goods and solar manufacturing.

“Cabinet approved changes in FDI policy for investments from Land Bordering Countries will help manufacturing in electronic components, capital goods and solar cells,” the statement said.

It added that the new framework would help improve India’s competitiveness as a manufacturing destination.

“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,” the government said.

The government said stronger FDI inflows could supplement domestic capital, support the objectives of the Atmanirbhar Bharat initiative and accelerate economic growth.