India amends FDI policy to prevent ‘opportunistic acquisitions’ of Indian companies⁠ by the Chinese

India amends FDI policy to prevent ‘opportunistic acquisitions’ of Indian companies⁠ by the Chinese
In this April 8, 2020, photo, workers wearing masks against the coronavirus chat near finished cars rolled out at the Dongfeng Honda Automobile Co., Ltd factory in Wuhan in central China's Hubei province. Chinese leaders have reopened factories and shops in an effort to revive the economy but consumers whose spending supplies most of China's growth are slow to return to shopping malls and auto dealerships.Photo/Ng Han Guan)

  • The Indian government introduced amendments in the Foreign Direct Investment (FDI) Policy to prevent “opportunistic acquisitions” of Indian companies by neighbouring countries.
  • The revised policy states that the countries that share land borders with India can only invest in Indian companies with government’s approval.
  • Any investments in these 17 sectors — including defence, space, pharmaceuticals and atomic energy — needs government nod.
The Indian government has introduced amendments in the Foreign Direct Investment (FDI) Policy to prevent “opportunistic acquisitions” of Indian companies by neighbouring countries, given the current downturn due to the Coronavirus pandemic.

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The revised policy states that the countries that share land borders with India can only invest in Indian companies with government’s approval. It will be applicable to large shareholding — more than 10%, officials said.

“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 a 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 official announcement said.
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“The recent amendment to India’s FDI Policy by DPIIT was much needed because in the current depressed economic environment, Indian companies are vulnerable to predatory acquisitions. This step seems to have been taken in the background of the high number of direct and indirect Chinese investments in India,” said Ambika Khanna, senior researcher at Gateway House.

“Such investments come through opaque beneficial ownership structures making it difficult to ascertain the ultimate beneficial owner,” she added.
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As per the Commerce and Industry Ministry, any investments in these 17 sectors — including defence, space, pharmaceuticals and atomic energy — needs government nod.
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That means, the restrictions that were earlier imposed on Bangladesh and Pakistan will now apply to other neighbouring countries like China as well, according to the Department for Promotion of Industry and Internal Trade (DPIIT).

“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.

Moreover, in case of the transfer of ownership in an FDI deal, the acquisitions can be made only via government route.
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