New Delhi

The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved changes to guidelines governing foreign direct investment (FDI) from countries sharing land borders with India, including China.

According to an official release issued on Tuesday, the amendments to the FDI policy introduce a definitive timeline for investment approvals in critical sectors requiring government clearance under Press Note 3 (2020).

The changes aim to facilitate greater FDI inflows, particularly from global funds investing in startups and deep-tech sectors, while advancing the government’s ease-of-doing-business agenda.

Under the revised policy, investment proposals requiring approval will be processed within a 60-day timeframe. Officials said this will help companies form collaborations and joint ventures more quickly, expand manufacturing in India and integrate with global supply chains.

The government said the changes are expected to benefit sectors such as electronic components, capital goods and solar cell manufacturing.

The revised policy also introduces a formal definition and criteria for determining “Beneficial Ownership”, based on the standards outlined in the Prevention of Money Laundering Rules, 2003.

Under the new framework, the beneficial ownership test will be applied at the level of the investor entity. Investments from land-bordering countries with non-controlling beneficial ownership of up to 10 per cent will now be permitted through the automatic route, subject to applicable sectoral caps and reporting requirements to the Department for Promotion of Industry and Internal Trade (DPIIT).

Additionally, proposals involving investments from land-bordering countries in specific manufacturing sectors—including capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer production—will be processed under an expedited clearance mechanism and decided within 60 days.

The government said that in such cases, majority shareholding and control of the investee entity must remain with resident Indian citizens or entities owned and controlled by them.

India had tightened its FDI norms in April 2020 through Press Note 3 to prevent opportunistic takeovers of domestic firms during the economic disruption caused by the COVID-19 pandemic.

Under that policy, entities from countries sharing land borders with India—or those whose beneficial owners are based in such countries—were required to seek government approval before investing in Indian companies. Any transfer of ownership resulting in beneficial ownership shifting to such jurisdictions also required government clearance.

Officials said the earlier restrictions sometimes affected investment flows from global private equity and venture capital funds where investors from neighbouring countries held small, non-controlling stakes.

The government expects the revised guidelines to improve clarity for investors, encourage higher FDI inflows and support India’s ambition of becoming a major global manufacturing hub under the Atmanirbhar Bharat initiative.

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The policy changes come amid evolving geopolitical developments and efforts by India to attract greater capital to support infrastructure expansion and manufacturing growth.