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India Revises FDI Policy: Govt nod required by all neighbouring nations to invest in Companies

The #Government of India has reviewed the extant Foreign Direct Investment (FDI) policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current #Covid19 pandemic. It has amended para 3.1.1 of extant #FDI policy as contained in Consolidated FDI Policy, 2017. The decision will take effect from the date of #FEMA notification.

As per the revised policy, a non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.


In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the above, such subsequent change in beneficial ownership will also require Government approval, a press note issued by the department for promotion of industry and internal trade, ministry of commerce and industry, said.


Earlier, Bangladesh citizens or entities incorporated there were allowed to invest through the government route.


“Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment,” it said defence, space, atomic energy and sectors/activities prohibited for foreign investment,” it said

That means, the restrictions that were earlier imposed on Bangladesh and Pakistan will now apply to other neighbouring countries like #China as well, according to the Department for Promotion of Industry and Internal Trade (#DPIIT).


While #India shares its border with several countries, the move is largely an attempt to prevent Chinese companies or entities backed by its government from buying stakes in Indian companies via the automatic route.

“The recent amendment to India’s FDI Policy by DPIIT was much needed because in the current depressed economic environment, Indian companies are vulnerable to predatory acquisitions. This step seems to have been taken in the background of the high number of direct and indirect Chinese investments in India,” said Ambika Khanna, senior researcher at Gateway House.


“Such investments come through opaque beneficial ownership structures making it difficult to ascertain the ultimate beneficial owner,” she added.


In recent times China's central bank had bought 1.01 percent stake in HDFC. News reports suggest that People's Bank of China held 1.75 crore shares of India's biggest housing mortgage lender which has raised eyebrows over the move. Also many countries have brought in legislation to save hostile takeover by Chinese companies. Australia was the first to make a move in this direction, followed by Germany and many more countries to avoid takeover of their entities by various Chinese companies scouting for transcontinental takeovers.


Earlier, reports said that market regulator Securities and Exchange Board of India (#SEBI) was monitoring equity transactions in India by Chinese companies and banks. Such transactions have come under the scanner at a time when the share prices of companies have dropped due to the economic impact of the coronavirus pandemic.


Globally, transactions by Chinese firms and institutions have come under scrutiny recently since the assets are being purchased at low valuations.

India has brought in nation-wide lockdown impacting businesses but these businesses have been built over the years and possess lot of inherent strength.


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