Cabinet Eases Press Note 3 Rules, Allows Up To 10% Border-Country FDI Through Automatic Route

The Union Cabinet approved changes to Press Note 3 of 2020 to relax foreign direct investment (FDI) rules for companies from countries sharing land borders with India, enabling investments with up to 10% beneficial ownership through the automatic route under specific conditions.
The decision was cleared at a Cabinet meeting chaired by Prime Minister Narendra Modi, according to government details. Further, it proposes to add a definition of beneficial ownership based on the definition of beneficial ownership under the Prevention of Money Laundering Rules, 2005, and its applicability at the level of investor entities.
Investments from neighboring countries with a beneficial ownership of up to 10% and without any control would be allowed through the automatic route after reporting to the DPIIT.

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Fast-Track Approval For Select Manufacturing Sectors

The government also introduced a fast-track approval mechanism for investments from neighbouring countries in select sectors. According to government details, approvals will be processed within 60 days for proposals in manufacturing segments, including capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer production.
The policy specifies that majority ownership and control of the investee company must remain with resident Indian citizens or Indian-owned entities at all times.
The move comes as domestic manufacturers seek partnerships to expand electronics component manufacturing in India. Industry proposals are being linked with the Electronics Component Manufacturing Scheme (ECMS), which has an incentive pool of ₹22,919 crore for the sector.

Electronics Supply Chain Partnerships

Indian electronic manufacturing companies have been trying to find joint ventures with international suppliers to gain access to technology and cost advantage through economies of scale. Collaborations have been planned in printed circuit boards, display modules, camera sub-assemblies, and batteries.
Recent developments include approval granted to Dixon Technologies by the Ministry of Electronics and Information Technology to form a 74:26 joint venture with HKC Overseas to manufacture liquid crystal modules and thin-film transistor liquid crystal display modules used in mobile phones, televisions, and monitors.
The company is also awaiting approvals for joint ventures related to laptop enclosures and precision components, according to company disclosures.

Background Of Press Note 3 Policy

Press Note 3 was introduced in April 2020 and required government approval for investments from countries sharing land borders with India. These countries include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.
The rule was implemented after the June 2020 Galwan Valley clash between India and China. Following the incident, India restricted several Chinese applications and tightened scrutiny of investments from neighbouring countries.
Despite the restrictions, trade between India and China has continued to expand in recent years, according to government trade data.
The new framework is to facilitate fresh investment proposals in manufacturing sectors while retaining existing requirements related to ownership, sectoral restrictions, and reporting regulations under India’s foreign investment policy.