Govt revises FDI policy to prevent 'takeover' of firms amid pandemic

The Government of India has reviewed the Foreign Direct Investment (FDI) Policy to curb “opportunistic takeovers/acquisitions” of Indian companies due to the current COVID-19 pandemic. This is likely to impact foreign investments from neighbouring countries like China.

FDI in India is allowed under two modes: either through automatic route or the government route. Through the automatic route, companies don’t need any go-ahead from the government. Currently, government approval is mandatory only for investments coming from Bangladesh and Pakistan.

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“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 by the Department for Promotion of Industry and Internal Trade (DPIIT).

It said the Government of India has reviewed the Foreign Direct Investment Policy to curb “opportunistic takeovers/acquisitions” of Indian companies due to the current COVID-19 pandemic. A company can invest in India, subject to the FDI policy except in those sectors or activities that are prohibited.

“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,” 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 the India-China Economic and Cultural Council.

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“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.

DPIIT also said that 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, “Such subsequent change in beneficial ownership will also require government approval.”

India received FDI from China worth $2.34 billion between April 2000 and December 2019. The countries sharing land border with India include Bangladesh, China, Pakistan, Bhutan, Nepal and Myanmar.

(With inputs from agencies)