New Delhi [India], May 2 (ANI): The government has tightened foreign investment rules by mandating prior approval for investments from countries sharing a land border with India, including cases involving indirect or beneficial ownership, according to a notification issued by the Ministry of Finance.

The notification said that entities from such countries 'shall invest only under the Government route,' reinforcing the requirement for prior approval before investing in Indian companies.

Further tightening the norms, the government clarified that even future changes in ownership will come under scrutiny. It stated that 'in the event of the transfer of ownership... resulting in the beneficial ownership falling within the restriction... such subsequent change... shall also require prior Government approval.'

The amended rules also lay down specific provisions for Pakistan. It said that 'a citizen of Pakistan or an entity incorporated in Pakistan shall invest only under the Government route,' and such investments will be allowed only in sectors 'other than defence, space, atomic energy and such other sectors or activities prohibited for foreign investment.'

The rules also expand the scope of monitoring by focusing on the ultimate ownership of investments. The notification specified that the term 'beneficial owner... shall have the same meaning as assigned to it' under the Prevention of Money Laundering Act, ensuring that authorities assess who actually controls the investment.

Additionally, the government introduced reporting requirements in certain cases. It said investments from entities with 'any direct or indirect ownership by a citizen or an entity of a country sharing land border with India... shall be subject to reporting requirements specified by the Reserve Bank.'

The notification also clarified that multilateral institutions will not fall under these restrictions, stating that 'a Multilateral Bank or Fund... shall not be treated as an entity of a particular country.'

The amended rules come into force from the date of their publication in the Official Gazette, the notification added. (ANI)