India Reviews Press Note 3, May Ease FDI Rules for Small Investments
NEW DELHI: The Indian government is actively reviewing Press Note 3 and may introduce a 'de minimis' threshold to permit automatic approvals for small foreign investments, according to sources familiar with the ongoing discussions. This potential change aims to streamline the approval process and reduce compliance burdens for minor investments, particularly in sectors where funding is urgently needed but sensitive technologies are not involved.
Background on Press Note 3
Press Note 3 was issued in April 2020 as a measure to curb opportunistic takeovers of Indian firms during the COVID-19 pandemic. It mandates prior government approval for foreign direct investment (FDI) from bordering countries, with China being the primary focus. Under the current framework, any FDI from entities based in or beneficially owned by citizens of bordering countries must be routed through the government approval process, regardless of investment size.
Proposed Changes and Rationale
Under the proposed change, investments below a certain size could qualify for automatic clearance instead of the current case-by-case approval process. Officials stated that this move is designed to speed up small-ticket investments and alleviate compliance burdens. A top government official explained, "We are examining whether there could be any openings to make it faster and easier to get a yes or a no on investments into India. We are also examining whether we could have any de minimis to permit larger funds that have some small element which has come to our attention."
The threshold would likely be defined by either a percentage stake or monetary value, with the final decision to be taken after carefully weighing security concerns. However, officials emphasized that Press Note 3 will not be rescinded. "Press Note 3 won't be rescinded in any event," the official said. "We have a cautious approach about the nature of investments that come into the country as we want to ensure there are no opportunistic takeovers of our critical sectors. And, therefore, Press Note 3 will continue."
Current Challenges and Industry Feedback
Industry executives have reported that the mandatory approval route has led to significant delays, even for small stake purchases or follow-on investments in already-approved ventures. Investment proposals are examined by the ministries of home and external affairs, and adverse reports—including those related to links with the Chinese Communist Party or the People's Liberation Army—often hold up proposals.
Geopolitical Context and Government Stance
The review of Press Note 3 comes amid geopolitical shifts, with ties between India and China easing since last year through ministerial visits, agreements to resume direct flights and allow tourists, and increased dialogue on resolving border disputes. The Centre has also adopted a more accommodative approach on visas. The external affairs ministry recently told Parliament, "In order to support the Make in India initiative, the government authorises the issue of business visas to foreign nationals, including to Chinese nationals (specialists/engineers/technical people), being engaged by Indian companies. Government of India has generally followed a facilitative approach towards business and employment visas, within the bounds of the relevant rules and policy."
This review reflects a balancing act between national security concerns and the need to foster a conducive environment for foreign investment, especially as India seeks to boost its economic growth and attract global capital in a competitive landscape.
