Govt. nod mandatory for FDI from neighbouring countries 

#GS3 #Economy 

Move may be aimed at preventing ‘opportunistic takeovers’ by Chinese entities 

  • In a move that will restrict Chinese investments, the Centre has made prior government approval mandatory for foreign direct investments from countries which share a land border with India. Previously, only investments from Pakistan and Bangladesh faced such restrictions. 
  • The revised FDI policy is aimed at “curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic,” said a press release from the Department for Promotion of Industry and Internal Trade on Saturday. 

‘With land borders’ 

  • 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 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. 
  •  Pakistani investors face further restrictions in requiring government approval for FDI in defence, space and atomic energy sectors as well. 
  • India shares land borders with Pakistan, Afghanistan, China, Nepal, Bhutan, Bangladesh and Myanmar. Investors from countries not covered by the new policy only have to inform the RBI after a transaction rather than asking for prior permission from the relevant government department. 
  • With many Indian businesses coming to a halt due to the lockdown imposed to contain the COVID-19 pandemic and valuations plummeting, a number of domestic firms may be vulnerable to “opportunistic takeovers or acquisitions” from foreign players.  
  • The stock exchanges that the People’s Bank of China now holds a 1.01% stake in the company. This was an instance of portfolio investment through the stock market and not FDI. 
  • The official statement added that a transfer of ownership of any existing or future FDI in an Indian entity to those in the restricted countries would also need government approval. The decisions will become effective from the date of the Foreign Exchange Management Act notification. 
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