India’s foreign direct investment (FDI) policy has undergone significant revisions, enabling foreign businesses with up to 10% ownership in Hong Kong or China to participate automatically in approved areas. Following the Union Cabinet’s acceptance of changes to the Department for Promotion of Industry and Internal Trade (DPIIT) Press Note 3 of 2020, the updated standards went into effect on May 1.
According to the revised framework, prior government approval will only be necessary for entities whose beneficial ownership surpasses 10% from nations that share land borders with India. In the past, mandatory approval procedures were triggered by even a small stake.
The modifications are intended to provide protections against opportunistic purchases while streamlining investment flows. However, the relaxation does not apply to entities registered in China, Hong Kong, or other neighboring countries.
Additionally, the Finance Ministry underlined that the Prevention of Money Laundering Act’s (PMLA) regulations are consistent with the concept of “beneficial owner.”
Furthermore, although Life Insurance Corporation (LIC) maintains a 20% cap, 100% FDI under the automatic route has been allowed in the insurance sector.
While preserving regulatory monitoring, the action is anticipated to boost investor confidence.
Source – India.com
