The Centre’s decision to ease foreign direct investment (FDI) rules for investors linked to countries sharing land borders with India is expected to reopen limited avenues for Chinese capital and help accelerate the clearance of pending investment proposals. However, strict ownership caps mean large investments will continue to be subject to government scrutiny.
The Union Cabinet on Tuesday introduced amendments to Press Note 3, including a formal definition of beneficial ownership. The changes allow investments to proceed through the automatic route if investors from land-bordering countries (LBC) hold up to 10 per cent non-controlling ownership in the investing entity.
The government has also introduced an expedited approval process with a 60-day timeline for specified manufacturing sectors, including capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer.
Financial sector analysts on Wednesday said that under the press note 3, which was introduced in 2020, investments from countries that share a land border with India required government approval. As a result, there was a pileup of about 600 applications, and the Centre had to take steps to ease the process, especially in certain sectors such as electronic capital goods and components.
DPIIT secretary Amardeep Singh Bhatia said that the pending applications covered under the 10 per cent threshold will go through the automatic route once the notification is issued, while for the specified sectors, a mechanism is being laid down for expedited approvals to ensure the 60-day timeline is followed.
Bhatia also said that the list of specified sectors can be expanded or reduced by a committee of secretaries headed by the cabinet secretary.
“All the restrictions for investors from LBCs are still applicable. This relaxation is only for entities in non-LBCs and having beneficial owners from LBCs below 10 per cent and non-controlling stake,” said Jai Prakash Shivahare, joint secretary in the department for promotion of industry and internal trade (DPIIT).
Electronics boost
The policy change comes soon after the Union Budget expanded the outlay for the Electronics Components Manufacturing Scheme (ECMS) to ₹40,000 crore from ₹22,919 crore, signalling a stronger policy push to deepen domestic electronics manufacturing.
“Pursuant to the announcement, the government has amended the FDI policy for countries sharing land borders with India. This will promote ease of doing business in India and facilitate greater foreign investments in India, particularly in the manufacturing sector. With this, pending investments/business plans can now be activated,” said Prashant Bhojwani, partner, corporate tax, tax & regulatory advisory at BDO India.
Industry representatives said the changes could help accelerate technology partnerships and supply chain integration.
“This reform will help companies move faster in forming technology partnerships, expanding manufacturing in India and integrating with global value chains,” said Pankaj Mohindroo, chairman of the India Cellular and Electronics Association.
Ashok Chandak, president of the India Electronics and Semiconductor Association, said the provision allowing non-strategic and non-controlling investments up to defined thresholds under the automatic route would help facilitate global fund participation while retaining appropriate oversight.
The country’s electronics production has grown from ₹1.9 lakh crore in 2014–15 to ₹11.3 lakh crore in 2024–25, while exports rose from ₹38,000 crore to ₹3.27 lakh crore in the same period.
