India tightens FDI norms for investors from neighbouring countries in the wake of COVID-19 pandemic. Move intended to restrict China to control indian companies via automatic route

New Delhi. A company or an individual from a country that shares land border with India can invest in any sector here only after getting government approval, according to DPIIT.

The decision, which is likely to impact foreign investments from countries like China, has been taken to curb “opportunistic takeovers or acquisitions” of domestic firms due to the current COVID-19 pandemic.

Currently, government permission is mandatory only for investments coming from Bangladesh and Pakistan.

“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 USD 4 billion of greenfield investments into Indian start-ups, as per the estimates of the India-China Economic and Cultural Council.

“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 USD 2.34 billion (Rs 14.846 crore) between April 2000 and December 2019.

The countries sharing land border with India include Bangladesh, China, Pakistan, Bhutan, Nepal and Myanmar.
The decision of the government to tighten foreign direct investment norms for investors from neighbouring nations like China was timely, but there is a need to look at all the FDI proposals from other countries particularly in sensitive sectors, according to experts.
The government on Saturday made prior approval mandatory for foreign investments from countries that share land border with India to curb “opportunistic takeovers” of domestic firms following the COVID-19 pandemic.

Shardul Shroff, Executive Chairman, Shardul Amarchand Mangaldas & Co, said this decision will help India monitor its FDI (foreign direct investment) which could be directed to acquisitions and takeovers of Indian entities at low valuations at least in the course of the pandemic.

“Entities from seven countries sharing a land border with india or where the beneficial owner of the investments into India is situated in, or citizen of any such seven countries can invest only through the government approval route,” Shroff said.

Terming the decision as “timely”, Biswajit Dhar, a professor of economics at Jawaharlal Nehru University, said that there are fears of takeovers by Chinese firms as domestic companies are severely impacted due to the lockdown.

However, he said: “Fear of acquisition of Indian companies in this crisis time is from everywhere, not only from China. The government should look at all the FDI proposals. It should not be narrowly focused only on certain country.”

He added that it will take some time for Indian manufacturing companies to come on track and it will also depend on the kind of stimulus package which they get from the government.

Rajat Wahi, Partner, Deloitte India, said that the decision may have been better if the government specifies sectors, rather than countries.

“The processes of FDI approval should be on fast track as it should not hamper FDI flows into the country,” Wahi said.

Countries which shares land borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan.

Commenting on this, Nangia Andersen LLP Director Sandeep Jhunjhunwala said Chinese tech investors have put an estimated USD 4 billion of greenfield investments into Indian start-ups, as per the estimates of India-China Economic and Cultural council.

“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. (PTI)