India eases FDI norms for LBCs, promises 60-day approval for key sectors

India has relaxed FDI norms for Land Bordering Countries, introducing a 60-day approval timeline for investments in specified sectors like rare earth magnets and capital goods. The government said this move will boost FDI and reduce import dependence.

Relaxed FDI Norms for LBCs

Proposals for investments from Land Bordering Countries (LBC) in specified sectors or activities, that include rare earth permanent magnets, shall be processed and decided within 60 days under the relaxed FDI norms under the Press Note 3, government officials said on Wednesday.

Among other sectors that would benefit are capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer. Committee of Secretaries (CoS) under the Cabinet Secretary may also revise the list of specified sectors.

Government's Rationale

The government yesterday relaxed norms for inward investments from countries that have land borders with India. Secretary of the Department for Promotion of Industry and Internal Trade (DPIIT), Amardeep Singh Bhatia, on Wednesday said the relaxation in norms will help increase FDI into the country. The Secretary also said the changes will enable joint ventures with Indian companies. "This will reduce our import dependence," he said. "It will bring a lot of certainty; there was a lot of interest in investment in India."

Background and Specifics of the New Rules

Investors with non-controlling LBC Beneficial Ownership of up to 10 per cent shall be permitted under the automatic route as per the applicable sectoral caps, entry routes, and attendant conditions. Such investments shall be subject to the reporting of relevant information/details by the investee entity to DPIIT.

In order to curb opportunistic takeovers or acquisitions of Indian companies due to the COVID-19 pandemic, the Government had amended the FDI Policy in 2020. An entity of a country, which shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country were allowed to invest only under the Government route. Additionally, any transfer of ownership of any existing or future FDI in an entity in India resulting in the beneficial ownership falling within the aforesaid jurisdiction(s) also requires Government approval.

Industry Expert's Perspective

Shardul S. Shroff, Executive Chairman, Shardul Amarchand Mangaldas & Co, said, "While the proposed 60-day expedited approval timeline for investments in specified sectors such as manufacturing and electronics components is a welcome step toward bringing greater certainty in processing timelines, the benefit will apply only where the majority shareholding and control of the Indian investee entity remain with resident Indian citizens or entities owned and controlled by resident Indian citizens at all times. Given this stringent requirement, the expedited route may have limited applicability." (ANI)

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