Why in News?
The Union Cabinet has amended the 2020 FDI restrictions introduced through Press Note 3, easing certain curbs on investments from countries sharing a land border with India.
Description:
Key Terms:
- Foreign Direct Investment (FDI): Investment by a foreign entity in an Indian company to obtain ownership or lasting control/interest in the business.
- Automatic Route: FDI allowed without prior government approval; investor only needs to report the investment to RBI.
- Government Route: FDI that requires prior approval from the Government of India before investment. The application from Foreign Investment Facilitation Portal will be forwarded to the respective ministries which will act on the application.
- Beneficial Ownership (BO): The ultimate person/entity that actually owns or controls an investment, even if routed through intermediary companies or countries.
The New Framework:
Previously, all FDI from land-border countries (China, Pakistan, Bangladesh, Myanmar, Nepal, Bhutan, Afghanistan) required mandatory Government Approval.
- The 10% Rule: Investments where the Beneficial Ownership (BO) from a land-border country is up to 10% are now permitted via the Automatic Route.
- Threshold: If BO exceeds 10% or involves a shift in “control,” the Government Route (Prior Approval) remains mandatory.
- Pakistan/Bangladesh Restriction: FDI from Pakistan remains prohibited in sensitive sectors (Defense, Space, Atomic Energy) and requires Government Route for all other sectors regardless of the 10% rule.
Strategic Fast-Track Approval:
To support the India Semiconductor Mission, specific high-priority sectors now receive expedited security clearance (within 60 days):
- Electronics Ecosystem: Electronic capital goods, components, and assembly.
- Semiconductor Value Chain: Polysilicon, Ingots, and Wafer manufacturing.
- Green Tech: Advanced Chemistry Cells (ACC) and specialized solar components.
Administrative & Monitoring Mechanism:
- Nodal Agency: Department for Promotion of Industry and Internal Trade (DPIIT).
- Oversight: A Committee of Secretaries (CoS) under the Cabinet Secretary monitors the “Beneficial Ownership” disclosures to prevent “treaty shopping” (routing Chinese capital through Singapore/Mauritius).
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