India revises FDI policy for neighbouring countries to curb “opportunistic takeovers or acquisitions due to COVID-19 pandemic

Companies in any country that shares a border with India will have to approach the government for investing in India and not go via the automatic route, the Commerce and Industry Ministry said in a press note spelling out its new foreign direct investment or FDI policy for neighbouring states.
FDI in India is allowed under two modes – either through the automatic route, for which companies don’t need government approval, or through the government route, for which companies need a go-ahead from the centre.
The revised FDI rule seeks to curb “opportunistic takeovers or acquisitions of Indian companies due to the COVID-19 pandemic”, the ministry said.
The government decided to revise the FDI rule to ensure no neighbouring country, especially China, takes undue advantage amid the COVID-19 pandemic, sources in the ministry said.
“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,” the ministry said in the statement.
A transfer of ownership in an FDI deal that benefits any country that shares a border with India will also need government approval, the ministry said.
The earlier FDI policy was limited to allowing only Bangladesh and Pakistan via the government route in all sectors. The revised rule has now brought companies from China under the government route filter.
The revised rule is not applicable to the recent 1.01 per cent stake sale by mortgage lender HDFC to People’s Bank of China as the deal was less than the strategic 10 per cent, the sources said. The revised FDI policy is applicable in large shareholdings of 10 per cent and above, they said.
There are 17 sectors including defence, telecom and pharmaceuticals that need government approval if any company from abroad wants to invest beyond a certain percentage.
Proposals involving FDI exceeding Rs 50 billion are placed before the Cabinet Committee on Economic Affairs.
Hours after the centre’s move, Congress MP Rahul Gandhi tweeted his thanks to the government for “taking note” of his “warning” over possible threats to weakened Indian firms amid the pandemic.
“I thank the Govt. for taking note of my warning and amending the FDI norms to make it mandatory for Govt. approval in some specific cases,” Gandhi tweeted on Saturday.
On April 12, he had tweeted, “The massive economic slowdown has weakened many Indian corporates making them attractive targets for takeovers. The Govt must not allow foreign interests to take control of any Indian corporate at this time of national crisis.”