With an eye on China, India revises FDI policy to shield firms from acquisitions
FDI rules have been revised to ensure no neighbouring country, especially China, takes undue advantage amid the COVID-19 pandemic
Fearing opportunistic takeovers or acquisitions of Indian companies on account of the Covid-19–related crisis, the Central government has revised the Foreign Direct Investment rules.
Companies in any country that shares a border with India will have to approach the government for investing in India and not go via the automatic route, the Commerce and Industry Ministry said in a press note spelling out its new foreign direct investment policy for neighbouring states.
FDI in India is allowed under two modes - either through the automatic route, for which companies don't need government approval, or through the government route, for which companies need a go-ahead from the Centre.
The government decided to revise the FDI rule to ensure no neighbouring country, especially China, takes undue advantage amid the COVID-19 pandemic, sources in the ministry said.
“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 ministry said in the statement.
A transfer of ownership in an FDI deal that benefits any country that shares a border with India will also need government approval, the ministry said.
The earlier FDI policy was limited to allowing only Bangladesh and Pakistan via the government route in all sectors. The revised rule has now brought companies from China under the government route filter.
The revised rule is not applicable to the recent 1.01 per cent stake sale by mortgage lender HDFC to People's Bank of China as the deal was less than the strategic 10 per cent, the sources said. The revised FDI policy is applicable in large shareholdings of 10 per cent and above, they said.
There are 17 sectors including defence, telecom and pharmaceuticals that need government approval if any company from abroad wants to invest beyond a certain percentage.
Proposals involving FDI exceeding Rs 50 billion are placed before the Cabinet Committee on Economic Affairs.