Govt amends FDI policy to curb opportunistic takeovers by neighbouring countries

New Delhi: The government on Saturday amended it’s FDI policy, to prevent opportunistic takeovers of Indian companies by foreign firms from neighbouring countries, during the COVID-19 pandemic.

As per the new amendment, FDI investments into Indian companies from the neighbouring countries will now require a nod from the government. This will be applicable to all countries that share a land border with India, such as China, among others.

”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 COVID-19 pandemic and amended para … of extant FDI policy as contained in Consolidated FDI Policy, 2017,” according to a note issued by the Department for Promotion of Industry and Internal Trade under the Commerce and Industry Ministry.

”In the revised position, 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.

”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,” the note said.

In the event of 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 or purview of above, such subsequent change in beneficial ownership will also require Government approval.

The above decision will take effect from the date of Foreign Exchange Management Act (FEMA) notification, the Ministry said.

The move comes after China’s Central Bank recently raised stake in the Housing Development Finance Corporation (HDFC) to a little over one per cent.

At present, a non-resident entity can invest in India, subject to the FDI Policy except in those sectors or activities, which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route.

Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors or activities other than defence, space, atomic energy and sectors prohibited for foreign investment.