April 19, 2020 4:02:32 am
The government on Saturday said firms in neighbouring countries wanting to invest in Indian companies will now be able to do so only after receiving its approval — a move that is seen as being aimed to curb “opportunistic” takeovers of Indian firms during the ongoing COVID-19 outbreak and lockdown.
According to amendments to India’s consolidated FDI Policy, 2017, while non-resident entities can continue to invest in India, except in prohibited sectors or activities, firms in neighbouring countries will have to seek approval.
Bid to stop hostile takeovers
COVID-19 and the nationwide lockdown have already begun to cause a strain on the finances of various businesses. The amendment is being interpreted as being aimed at preventing a situation where weakened firms are the subject of opportunistic takeovers.
“…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,” stated a press note by the Department for Promotion of Industry and Internal Trade (DPIIT).
While the note did not single out any country, analysts pointed to the amendments being aimed at possible Chinese investments. The decision comes days after China’s central bank, the People’s Bank of China (PBoC) had raised its shareholding in Housing Development Finance Corporation (HDFC) to over one per cent during the recent stock market slump. HDFC vice chairman and CEO Keki Mistry had said that PBoC had been an existing shareholder, owning 0.8 per cent in the firm as of March 2019.
According to a recent paper published by Brookings India, the total current and planned investment by China in India is at least $26 billion.
“Chinese companies have also invested in acquiring stakes in Indian companies, mostly in the pharmaceutical and the technology sectors, and participated in numerous funding rounds of Indian startups in the tech space. Another $15 billion approximately is pledged by Chinese companies in investment plans or in bids for major infrastructure projects that are as yet unapproved,” stated the paper, published on March 30.
Restrictions on investments by citizens of or entities incorporated in Pakistan continue in the amended notification. Here, government approval would be required for investments in sectors or activities other than defence, space, atomic energy and other prohibited sectors.
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