The Government of India has reviewed the Foreign Direct Investment (FDI) to curb “opportunistic takeovers or acquisition” of Indian companies due to the COVID-19 pandemic and amended para 3.1.1 of living FDI policy as contained in Consolidated FDI Policy, 2017. Department for Promotion of business and Internal Trade, Ministry of Commerce and business has issued Press Note No. 3(2020 Series) during this regard.
India’s FDI policy permits foreign investment in bound sectors beneath the automated route and up to the limit commenced in this sector. parenthetically 100% is permissible beneath the automated route in producing, oil and gas, greenfield airports, construction, railway infrastructure etc.
In different sectors, FDI is allowed beneath the automated route up to a precise threshold, say twenty-six or forty nine percent, and from now on foreign investment then needs government approval. Such conditions apply to defence, broadcast and medium, aviation and different sectors. there’s conjointly a listing of prohibited sectors, corresponding to lottery, cigarettes, energy.
The new rules are primarily aimed at non-resident entities that are from countries that share a land border with India. This includes China and other nations such as Nepal, Bhutan and Myanmar.
Investment in Asian nation may be routed through 2 methods- automatic route, that doesn’t need any government permission any, and also the government route, that one wants the approval of authorities.
With the new FDI norms kicking in, associate Chinese company desirous to invest in an Indian entity would force permission from the govt. The decision might have large ramifications on the prospect of India-China trade ties within the returning days.
Overall, Chinese investments in Asian nation were to the tune of $26 billion, a major increase since 2014, once they were around $1.6 billion, as per official knowledge. Recent knowledge points out that China has place cash into thirty Indian start-ups, totalling around $4 billion. Chinese apps, as well as TikTok and Helo among others, are believed to be creating variant greenbacks in subscriptions from Indian users.
The earlier rules declared that solely entities primarily based out of People’s Republic of Bangladesh and Pakistan were needed to supply their investment through the govt route.
The revised rule isn’t applicable to the recent one.01 per cent stake sale by mortgage loaner HDFC to People’s Bank of China because the deal was under the strategic ten per cent, the sources aforesaid. The revised FDI policy is applicable in giant shareholdings of ten per cent and higher than, they said.
There are seventeen sectors as well as defence, telecommunication and prescription drugs that require government approval if any company from abroad needs to speculate on the far side an exact proportion. Proposals involving FDI surpassing Rs fifty billion are placed before the cupboard Committee on Economic Affairs.
Hours once the centre’s move, Congress MP Rahul Gandhi tweeted his due to the govt for “taking note” of his “warning” over doable threats to weakened Indian corporations amid the pandemic.
“I thank the Govt. for taking note of my warning and amending the FDI norms to make it mandatory for Govt. approval in some specific cases,” Mr Gandhi tweeted.
The change of paragraphs in the FDI Policy is as follows:
1. A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. 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.
(a) 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. 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.
(b) 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/purview of the para 3.1.1(a), such subsequent change in beneficial ownership will also require Government approval
The new restrictions will apply to countries such as China, Nepal, Bhutan and Myanmar. The DPIIT note say that the decision will take effect from the date of FEMA notification.