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Changes in FDI policy to bar Chinese investment in Covid times

Rahul Agarwal 
on 20 April 2020

LinkedIn


The government has amended the Foreign Direct Investment (FDI) policy to discourage opportunistic investment in Indian companies by neighboring countries in the midst of the coronavirus pandemic.

As per the new amendment, FDI investments into Indian companies from the neighboring countries that share a land border with India will now require government nod. Also, transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership will also require Government approval this will be applicable to all countries that share a land border with India – including China.

WHY IT IS DONE?

This is done to avoid hostile takeovers of Indian firms, the government has also announced that transfer of beneficial ownership in any country that shares a border with India will also need government approval.

BACKGROUND

India's FDI policy allows foreign investment in certain sectors under the automatic route and up to the limit set out in that sector. 

 

For instance 100 percent FDI is permitted under the automatic route in manufacturing, oil and gas, greenfield airports, construction, railway infrastructure, etc. In other sectors, FDI is allowed under the automatic route up to a certain threshold, say 26 or 49 percent.

 

Additionally, it's unclear if investments from Hong Kong would be differently or similarly treated to investments coming from China. For instance, rules on the establishment of Branch or Project Office treat China and Hong Kong as different but for certain trade-related guidelines, they are treated the same, he added. To be clear, the changes have been made only to foreign direct investment and not FPI RULES.

RECENT AFFAIRS -

Recently China's Central Bank had increased its stake to 1.01 percent in Housing Development Finance Corporation Ltd.(HDFC Ltd) via the FPI route. The change in FDI rules are not applicable on this move bu the Central Bank of China.

What does the Chinese Embassy have to say?

After the amendment in the FDI policy was made the Chine Embassy sais, "

"India's new FDI norms for investors from specific countries violate WTO's principle of non-discrimination. They go against the general trend of liberalization and facilitation of trade and investment"

What do you think, the amendment in FDI Policy was a much-needed move to protect Indian Companies from opportunistic investments from China or this is against the general trend of liberalization?


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