Targeting China, India revises FDI Policy to curb 'opportunistic acquisitions'
The Center on Saturday revised the Foreign Direct Investment (FDI) Policy to prevent "opportunistic acquisitions" of vulnerable, coronavirus pandemic-hit Indian companies. The government tweaked FDI rules, making its approval mandatory for investments from neighboring countries, especially China. The amendment reportedly comes after sections of the industry warned that deep-pocketed Chinese entities were looking to takeover vulnerable Indian firms amid the ongoing crisis. Here's more.
India's new FDI Policy for neighboring countries
The Ministry of Commerce and Industry said that entities in any country that shares a land border with India must first approach the government for making investments, adding they can't invest via the Automatic route. In India, there are two FDI routes: the Government route, which requires prior approval from the Center, and the Automatic route through which companies don't require the government's go-ahead.
Ensuring neighboring countries don't take undue advantage amid crisis
The decision to revise the FDI Policy was taken by the government to ensure that no neighboring country, especially China, takes "undue advantage" amid the ongoing crisis in India caused by the coronavirus pandemic. The Ministry said that the amendment seeks to prevent any "opportunistic takeovers or acquisitions of Indian companies due to the COVID-19 pandemic."
Here's what the Ministry of Commerce and Industry stated
"A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited," stated the Ministry. "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," it added.
Such restrictions were earlier imposed on Pakistan and Bangladesh
According to the previous FDI Policy, entities from Pakistan and Bangladesh were required to follow only the Government route for all sectors. However, the amended policy has extended the ambit to companies from other neighboring states too. The restrictions previously applicable to Pakistan and Bangladesh will now be imposed on other countries sharing land borders with India, including China, Bhutan, Nepal, Myanmar, and Afghanistan.
Amended rules applicable to shareholdings of 10% and above
"A citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defense, space, atomic energy and sectors/activities prohibited for foreign investment," the Ministry noted in its statement. Also, the amended FDI Policy rules will be applicable to large shareholdings of 10% and above, according to officials.
Sectors which require prior approval from Center
According to the Ministry, in India, there are 17 sectors for investing in which foreign companies will require the government's prior approval in case they want to invest beyond a certain percentage. Such sectors include defense, space, telecom, pharmaceuticals, and atomic energy, among others.
