The government Saturday made its prior approval compulsory for foreign investments from all the countries sharing borders with India to prevent “opportunistic takeovers” of domestic firms following the COVID-19 pandemic. The move will restrict Foreign Direct Investment (FDI) from China.
The countries India shares its land borders with are China, Pakistan, Afghanistan, Bangladesh, Bhutan, Myanmar, and Nepal.
“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,” the Department for promotion of Industry and Internal Trade (DPIIT) said in a press note. Under government route, a foreign investor has to take prior approval of respective ministry or department.
Through automatic approval route, the investor just ned to inform the Reserve Bank of India after investing. At present, though FDI is allowed through automatic route in most of the sectors, certain areas such as defence, telecom, media, pharmaceuticals and insurance, government approval is required for foreign investors. There are nine sectors where FDI is prohibited and that includes lottery business, gambling and betting, chit funds, Nidhi company, real estate business, and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco.
During April-December 2019-20, FDI into India increased by 10 per cent to $ 36.77 billion.
The note stated that the government has made the changes in the country’s FDI policy to curb “opportunistic takeovers/acquisitions” of Indian companies on account of COVID-19 pandemic.
Any transfer of ownership of any existing or future FDI in a company in India, which results in any change in beneficial ownership, would also need government approval, it said. “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 or urview of the (amended policy), such subsequent change in beneficial ownership will also require government approval,” the note said.
According to sources, the decision would restrict China from investing in India amid fears that companies in the neighbouring country might make takeover bids in the wake of economic vulnerability the domestic firms are facing during the lockdown imposed to contain spread of coronavirus.
Such a norm was already there for investments from Pakistan. “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 added.
Commenting on this, Nangia Andersen LLP Director Sandeep Jhunjhunwala said as per the estimates of India-China Economic and Cultural council, Chinese investors have put estimated an $ 4 billion of greenfield investments into Indian start-ups. “Such is their pace that over the last few years, 18 out of India’s 30 unicorns are Chinese-funded. Overall, time is right for India to safeguard longer-term considerations and protect its technology ecosystem by blocking hostile deals and effectively dealing with the looming challenge posed by Chinese tech companies,” he said adding SEBI had earlier sought details from custodians regarding investments coming from China into Indian stock markets.
According to the DPIIT data, India received FDI worth $ 2.34 billion (Rs 14.846 crore) from China between April 2000 and December 2019. During the same period, Bangladesh invested Rs 48 lakh, Nepal invested Rs 18.18 crore,Myanmar invested Rs 35.78 crore, and Afghanistan invested Rs 16.42 crore in India. There have been no investments from Pakistan and Bhutan. Chinese central bank — People’s Bank of China — has recently increased its stake in HDFC Ltd to 1.01 per cent.
(With inputs from PTI)
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