Govt permission must for all FDIs from neighbouring countries including China

The government on Saturday made its prior permission mandatory for foreign investments from countries that share a land border with India to curb “opportunistic takeovers” of domestic firms following the COVID-19 pandemic, a move which will restrict FDI 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 a land border with India or where the beneficial owner of 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 a 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 purview of the (amended policy), such subsequent change in beneficial ownership will also require government approval,” it said.

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 the 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,” as per the present rule.