The PN3 approval system was introduced by the Department for Promotion of Industry and Internal Trade (DPIIT) back in 2020 to prevent opportunistic acquisitions of Indian companies during the Covid-19-induced economic disruption.
As per the latest change announced on Tuesday, foreign ownership of up to 10% in Indian companies from these countries will now be permitted under the automatic route, needing no prior approval from the government or RBI. Additionally, the request for PN3 approval will be fast-tracked to 60 days for specific sectors including capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer manufacturing.
Electronic components one of the key mentions
JM Financial highlighted in its note that electronic components was one of the key mentions among the sectors considered for the expedited process. “As India has virtually no background in component manufacturing, and with the government attempting to foster the component ecosystem in India (making foreign support key), it is logical for it to expedite approvals, which may be crucial for the success of the scheme,” the domestic brokerage said.
The move comes in tandem with the Electronics Component Manufacturing Scheme (ECMS), for which Budget 2026-2027 raised outlay to Rs 40,000 crore, along with the government’s strong push to foster the electronics component ecosystem in India, JM Financial added.
“Further, given the plethora of applications received under the ECMS, we believe it is logical for the government to expedite approvals, ensuring no delays in execution by the bureaucracy, and the consequential success of the scheme,” the brokerage said.Dixon‘s Vivo JV likely won’t see benefit
JM Financial however noted that Dixon Tech’s much-awaited Vivo JV, which is currently awaiting PN3 approval, will likely not be benefitted from this change as the fine print of the amendment doesn’t mention electronics, smartphone manufacturing or assembly in any way.
“India has very little to export to China and we are importing a lot from them,” market expert Ajay Bagga told ET Now. Despite India’s headline-grabbing claim of exporting $23 billion worth of smartphones globally, Bagga points to a less flattering figure beneath the surface. “Over 70% of components still originate from China, meaning India’s real value addition hovers at just 25–28%. The government’s core ambition — manufacturing intermediates and components domestically — is precisely why a controlled engagement with Chinese capital has moved back onto the table,” he said.
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“We just shut down the doors on China after the 2020 Galwan clash,” Bagga noted. “Now we are re-examining it.” China remains one of the largest sources of FDI globally, and with a $20 trillion economy dwarfing India’s $4.5 trillion, the strategic calculus has shifted, the market expert said.
By adopting a defined 10% threshold and a control-based test, the government appears to be signalling that minority and non-controlling participation from neighbouring jurisdictions should not automatically face the same regulatory hurdles as strategic or controlling investments, said Atul Pandey, Partner at Khaitan & Co.
“While national security concerns remain safeguarded through the approval route for controlling investments, the relaxation for minority participation could help revive capital flows, particularly through global funds and strategic partnerships in manufacturing and technology sectors,” Pandey added.
The change suggests that India is moving from a blanket restriction approach under PN3 to a more risk-based framework, he further said, adding that minority participation from neighbouring jurisdictions may now face fewer regulatory hurdles, while the approval requirement continues to apply to investments involving control or strategic influence.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
