Government updates FDI rules to safeguard domestic companies

Team SoOLEGAL 21 Apr 2020 3:15pm

Government updates FDI rules to safeguard domestic companies

NEW DELHI: On Saturday, 18th April 2020, the government made its prior approval mandatory for foreign investment from countries sharing land borders with India to counter "opportunistic takeovers" of domestic firms following the Covid-19 pandemic, a step that will limit China's FDI.

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

"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 statement released by the Department for promotion of Industry and Internal Trade (DPIIT).It said that, due to the Covid-19 pandemic, the government has amended the FDI (foreign direct investment) policy to prevent "opportunistic takeovers / acquisitions" of Indian firms.

From now government approval would be compulsory for any transfer of ownership of any current or potential FDI in a company in India, resulting in change of 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 limit foreign investment from China in the expectation that businesses in the neighbouring country will be able to make takeover bids at a time when domestic firms are battling the lockdown imposed to curb the rapid spread of coronavirus.It is an effort to test and offer the government the opportunity to examine acquisitions and investments coming from different jurisdictions in India.

China's central bank – People's Bank of China – recently raised its stake in mortgage lenders HDFC Ltd to 1.01%.While FDI is permitted automatically in most sectors, but approval by government for foreign investors is required in sectors such as defence, the telecommunications sector, the media, pharmaceuticals and insurance.There are nine sectors where FDI is barred, including lottery industry, gambling and betting, chit funds, Nidhi company, real estate business, and tobacco production, cheroots, cigarillos, and cigarettes.

FDI to India has increased by 10 per cent to $36.77 billion during April-December 2019-20.

Tagged: Government updates   FDI rules   domestic companies   domestic firms   Covid-19 pandemic   coronavirus   foreign investors  
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