New Delhi, March 16 The Department for Promotion of Industry and Internal Trade (DPIIT) on Monday notified changes in the FDI policy to allow overseas companies with Chinese shareholding of up to 10 per cent to invest in India under the automatic route.
These investments will be subject to sectoral FDI (foreign direct investment) limits and conditions.
However, the relaxed FDI norms will not apply to entities registered in China/Hong Kong or other countries sharing land borders with India.
Previously, foreign firms with shareholders from these land border nations owning even a single share had to seek mandatory approval to invest in India in any sector.
Now, these restrictions will only apply to beneficial owners.
A DPIIT notification said, "The expression 'beneficial owner' of an
investment in India will mean the beneficial owner of the investor entity
incorporated or registered in a country other than a country which shares a land border
with India".
The beneficial owner will have the same meaning as defined under Section 2(1)(fa) of the Prevention of Money-laundering Act (PMLA), 2002.
According to a PMLA rule, controlling ownership interest means ownership of or entitlement to more than ten per cent of shares or capital or profits of the company.
A decision to ease the norms was taken by the Union Cabinet last week.
In order to curb opportunistic takeovers/acquisitions of Indian companies due to the COVID-19 pandemic, the government had amended the FDI policy through Press Note 3 (2020) on April 17, 2020.
Following that, an entity of a country sharing a land border with India, or where the beneficial owner of an investing entity is situated or is a citizen of any such country, can invest only after getting permission from the government.
This rule was seen as adversely affecting investment flows from investors, including global funds, such as PE (private equity)/VC (venture capital) funds.
The main problem with this rule was faced by overseas companies having minority shareholding of Chinese/Hong Kong citizens or entities.
Countries that share land borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.
The DPIIT notification also said that "the investments into India from an investor entity having any direct or indirect ownership by a citizen or an entity of a country
sharing land border with India; and not requiring prior government approval...shall be subject to reporting requirement in the format as per the Standard Operating Procedure laid down by DPIIT".
These requirements will be in addition to compliance with the applicable sectoral cap, entry route and attendant conditions, it added.
The decision will take effect from the date of the FEMA (Foreign Exchange Management Act) notification.
Earlier, the department said that there would be a mechanism for expedited clearance of foreign direct investment proposals of companies from China and other countries sharing land borders with India, across specified sectors.
It stated that those applications will be approved in 60 days.
China stands at the 23rd position with only 0.32 per cent share (USD 2.51 billion) in the total FDI equity inflow reported in India from April 2000 to December 2025.