Until April, India welcomed foreign direct investment (FDI) through the automatic route in a variety of sectors (barring strategic ones like defence). The border tensions with China changed this, and the Cabinet approved new regulations requiring FDI from countries bordering India to get approval from the Centre before it could be cleared.
A definite outcome of the chilling relations between India and China, the move was expected to have an impact on a range of Indian businesses. However, there still remained the question of how much FDI would be permissible—the Cabinet discussed this, including the idea of setting the floor at 10-25 per cent (based on provisions in the Companies Act and Prevention of Money Laundering Act respectively). The debate was over what constituted “beneficial ownership”, which refers to those who derive benefits from an investment made through a third-party—for example, investments made through venture capital or private equity funds.
Now, however, the government may be considering dropping the threshold altogether—any amount of Chinese investment will require permission, according to a report in the Times of India.
Six months into discussions over a threshold, the Cabinet’s decision “did not mention a minimum or maximum limit. So, even [if] it is a small fraction, it will be covered,” a government official was quoted as saying by TOI.
According to the report, an inter-ministerial group met this week and began work on guidelines for various ministries, which would guide them on proposals but would not be binding. While guidelines are expected within the next few days, investments from Taiwan are expected to be excluded, while those from Hong Kong will be included.