Press Note 3 easing to apply prospectively, but some pending FDI proposals may benefit

(Representative image)

• FDI rule easing applies prospectively, some pending cases benefit
• Land-bordering investors under 10% can use auto route
• Fast-track approval for some manufacturing; security checks remain

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The Centre’s latest easing of foreign direct investment (FDI) rules under Press Note 3 will apply prospectively, though some pending proposals with low exposure from land-bordering countries may also benefit from the new framework.

“This will be prospective in nature, but some applications which are pending and have below 10 percent investment will not need to take the old route and will be considered through the automatic route,” clarified Jai Prakash Shivahare, Joint Secretary at the Department for Promotion of Industry and Internal Trade (DPIIT).

The same would also apply to sectors that are eligible for the 60-day expedited approval route.

The clarification comes after the Cabinet on March 10 approved amendments to Press Note 3, introducing a definition of “beneficial ownership” and allowing investments where investors from land-bordering countries hold up to 10 percent non-controlling ownership to proceed under the automatic route.

Press Note 3, introduced in April 2020, requires government approval for investments from countries that share a land border with India, including China, Pakistan, Bangladesh, Nepal, Bhutan, or where the beneficial owner of the investment is located in or is a citizen of such countries.

Officials said the amendment aims to remove ambiguity around beneficial ownership and facilitate smoother inflows of global capital into Indian companies, including startups and deep-tech firms.

Separately, the government has also introduced an expedited approval process with a 60-day timeline for investments from land-bordering countries, excluding Pakistan, in a set of strategic manufacturing sectors.

Department for Promotion of Industry and Internal Trade (DPIIT) Secretary Amardeep Singh Bhatia said the government expects the easing of norms to boost foreign investments.

“We expect that investment will increase with the easing of these requirements,” Bhatia said.

He clarified that the expedited approval mechanism is limited to certain sectors and specific proposals, particularly those involving collaborations between foreign investors and Indian companies.

“The expedited approval process is only for certain select sectors and certain companies who want a joint venture with Indian companies,” Bhatia said.

The sectors currently covered under the fast-track mechanism include capital goods manufacturing, electronic capital goods, electronic component manufacturing, polysilicon and wafer manufacturing, advanced battery components, and rare earth magnets and processing.

Bhatia said the government selected these areas because of the need to strengthen domestic manufacturing ecosystems.

“We found that we need to boost manufacturing in certain sectors. We were doing well in electronics but we also needed to boost our components sectors. Similar with capital goods, we need investment and manufacturing to take place in this area. We see large scope of JVs in these sectors,” he said.

He added that the list of sectors could expand over time.

According to the DPIIT Secretary, around 600 applications have been received under Press Note 3 since the policy was introduced.

Bhatia stressed that while procedures are being simplified, national security checks will continue.

“It’s an expedited process. Some steps have been done away with, the mechanism we will bring out in the standard operating procedure. But the step of security and political clearance will remain,” he said.

He also clarified that the beneficial ownership definition is not sector-specific.

“Beneficial ownership is not specific to a sector. We have just defined it now,” Bhatia said.

At the same time, the government said the relaxation does not mean security concerns are being overlooked.

“Opening up doesn’t mean concerns with regard to security go away in all cases. We are opening up in a calibrated manner, in non-strategic sectors,” Bhatia said.