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Government nod must for all FDI from neighbouring countries

The Department for Promotion of Industry and Internal Trade (DIPPT) under the supervisions of Ministry of Commerce & Industry (MCI) issued the Press Note. 3 (2020) reviewing the Foreign Direct Investment (“FDI”) policy with the aim to curb opportunistic takeovers/acquisition of Indian companies due to the current Covid-19 pandemic. During the current lockdown period, it has been observed in the media and news articles, that the neighboring countries of India are investing in stake of various Indian Companies such as China’s central bank recently raised stake in Housing Finance Development Corporation (HDFC) to a little over 1 percent. Therefore, in order to regulate such acquisitions and keep a check, the Government has reviewed the extant FDI policy in order to curb the opportunistic takeovers/acquisitions of Indian companies due to the current pandemic.

The brief highlights of the amendments made in the FDI guidelines are as follows:

  • An entity which belongs to such country which shares land border with India or where the beneficial owner of an investment into India is situated or is a citizen of any such country, should seek approval under the Government route, before investing into Indian Companies.
  • Due to transfer of ownership of any existing or future FDI in Indian Company, directly or indirectly resulting in the beneficial ownership falling under the ambit of above-mentioned provision, then such transfer of ownership will be subject to approval under Government route. The provisions shall be applicable to applicable to the existing companies.
  • The similar FDI restrictions were earlier placed on Pakistan and Bangladesh.
  • The aforesaid decision will take effect from the date of FEMA notification.

The amendment will bring the investment by neighboring countries in Indian Companies under the Government route, to ensure that the Indian Companies are not handed over through takeover/acquisition route to the companies situated in the neighboring countries including Pakistan, Bangladesh and China.