The Indian government has notified two significant changes to foreign direct investment (FDI) rules, aimed at boosting inflows amid a weakening rupee. The first change relaxes restrictions on investments from countries sharing land borders with India, including China, while the second permits up to 100% FDI in the insurance sector.
Relaxed rules for border-sharing countries
Starting May 1, companies with up to 10% Chinese holding can invest through the automatic route. This amends a six-year policy that required government approval for all FDI from neighboring countries. The amendment comes in response to concerns from global investors, particularly private equity firms.
Under the new rules, companies without “significant beneficial ownership” will be allowed under the automatic route. In line with the Prevention of Money Laundering Act (PMLA), the cap on significant beneficial ownership has been set at 10%. However, the relaxed rules do not apply to entities registered in China, Hong Kong, or other land-border-sharing countries.
Additionally, the notification clarifies that multilateral banks or funds in which India is a member, such as the Asian Development Bank (ADB), New Development Bank (NDB), and Asian Infrastructure Investment Bank (AIIB), will not be treated as entities of a particular country. No country will be considered the beneficial owner of investments made by such institutions in India. The government also stated that the transfer of “participating interest or right” in oil fields by Indian companies to a person resident outside India will be treated as foreign investment.
100% FDI in insurance
Through another notification, the government has allowed 100% FDI in insurance companies and intermediaries, including brokers, third-party administrators, and corporate agents. However, for the Life Insurance Corporation of India (LIC), investment through the automatic route is limited to 20%.
The notification specifies that either the chairman or the managing director and CEO of the insurance entity must be resident Indian citizens.
