The government on Saturday made its prior approval mandatory
for foreign investments from countries that share land border with India to
curb 'opportunistic takeovers' of domestic firms following the COVID-19
pandemic, a move which will restrict Foreign Direct Investment from China.

Countries which shares land borders with India are China,
Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.
'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,' according to a
press note issued by the Department for promotion of Industry and Internal
Trade (DPIIT).
It
said that the government has amended the FDI (foreign direct investment) policy
to curb 'opportunistic takeovers/acquisitions' of Indian companies on account
of COVID-19 pandemic.
It
also said that government approval will be mandatory for any transfer of
ownership of any existing or future FDI in a company in India, which results in
change in beneficial ownership, falling under this new restriction.
'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,' it said.
According to sources,the
decision would restrict foreign investments from China amid fears that
companies in the neighbouring country might make takeover bids at a time when
domestic firms are battling lockdown imposed to contain rapid spread of
coronavirus.
Currently such a norm was
there for investments coming from Pakistan. A company can invest in India,
subject to the FDI policy except in those sectors/activities which are
prohibited.
'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 Chinese tech investors have put
an estimated $4 billion of greenfield investments into Indian start-ups, as per
the estimates of India-China Economic and Cultural council.
'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 Securities and Exchange Board of India had earlier sought details from
custodians regarding investments coming from China into Indian stock markets.
PwC India Partner (Tax and
Regulatory) Vikram Doshi, said, "COVID-19 will impact several businesses,
especially ones that are highly leveraged. It will open up takeover
opportunities in many sectors."
He added that this press
note is an attempt to place a check and give the government an opportunity to
review such takeovers and investments coming into India from specific
jurisdictions.
According to the DPIIT
data, India received FDI from China worth $2.34 billion (Rs 14.846 crore)
between April 2000 and December 2019.
During the same period,
India has attracted Rs 48 lakh from Bangladesh, Rs 18.18 crore from Nepal, Rs
35.78 crore from Myanmar, and Rs 16.42 crore from Afghanistan. There are no
investments from Pakistan and Bhutan.
Chinese central bank --
People's Bank of China -- has recently hiked its stake in mortgage lender HDFC
Ltd to 1.01 per cent.
Although 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.
Under government route,
foreign investor has to take prior approval of respective ministry/department.
Through automatic approval route, the investor just has to inform the RBI after
the investment is made.
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.
No comments:
Post a Comment