India Checkmates China: Amends FDI rule to curb opportunistic takeovers of Indian companies due to COVID-19 pandemic

New Delhi, April 18, 2020: Days after central bank of China bought stake in HDFC, the Government of India has reviewed the extant Foreign Direct Investment(FDI) policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic.

Any company or individual from countries sharing land borders with India will have to seek government approval before investing in any sector in India. The Department of Promotion of Industry and Internal Trade (DPIIT) has given this information. This decision will affect foreign investment from countries like China. This decision of the government is very important. This decision has been taken so that foreign companies do not take over domestic companies by taking advantage of the fragile conditions created by Coronavirus COVID19.

Till now only the investment from Bangladesh and Pakistan required government permission. A press release issued by DPIIT stated that any company or citizen of the countries sharing land borders with India can invest only after permission from the government.

The press release stated that the Government of India took the decision after reviewing the policies related to Foreign Direct Investment (FDI) to prevent ‘opportunistic takeovers / acquisitions’ of Indian companies due to the COVID-19 epidemic.

The government has amended para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017. Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry has issued Press Note No. 3(2020 Series) in this regard. The present position and revised position in the matters will be as under:

Present Position 

Para 3.1.1: 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.

Revised Position 

3.1.1(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.

3.1.1(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.