In latest FDI rule, govt bans automatic investments by neighbouring countries including China

KOLKATA: Indian Government has announced an amendment to the Foreign Direct Investment(FDI) policy. This amendment was incorporated to prevent neighboring countries from investing opportunistically, during these hard times for our country.

This amendment comes after People’s Bank of China (PBOC) recently upped its stake in Housing Development Finance Corporation to 1.1%, on behalf of the Chinese sovereign wealth fund, SAFE.

This new amendment states that Foreign Direct Investments into companies, based in India, now require a permission from our government. This rule will be applicable to any country that shares a land border with India.

These types of FDI restrictions were placed on Pakistan and Bangladesh, earlier. Furthermore, this particular amendment states that thetransfer of ownership of Indian companies arising out of FDI investments from neighboring countries will now also be subject to government approval.

Department for Promotion of Industry and Internal Trade (DPIIT) notified about these amendments via a Press Note. “Government has reviewed the FDI policy for curbing opportunistic takeovers or acquisitions of Indian companies due to the current COVID-19 pandemic,” stated the note.

Additionally, The note highlights, “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.”

The amendment will come into effect from the release date of the Foreign Exchange Management Act (FEMA) notification.

Globally, transactions by Chinese firms and institutions have come under scrutiny as their purchase of company stocks and assets, is steadily increasing. The reason is that prices have recently fallen due to the economic impact of the Coronavirus pandemic. Nations like the US, Japan and Australia have already placed restrictions on Chinese companies, buying assets. Now, Securities and Exchange Board of India (SEBI) has joined the fray in monitoring these transactions, according to industry reports.

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