FDI Policy to Curb ‘Opportunistic Takeover’ of Indian Companies
NEW DELHI : 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.
The new rules are primarily aimed at non-resident entities that are from countries that share a land border with India. This includes China and other nations such as Nepal, Bhutan and Myanmar.
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.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.
Over the last few weeks, investor concerns over the global pandemic have caused stock and asset prices to plummet, sparking fears that some Indian companies may be vulnerable to pressures from overseas lenders and takeover attempts by deep-pocketed foreigners.
In a Department for Promotion of Industry and Internal Trade (DPIIT) file note dated April 17, the government now looks to change this. “The Government of India has reviewed the extant FDI policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic and amended para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017…,” the note states.
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 upto a certain threshold, say 26 or 49 percent.The government has now narrowed the scope of eligible investors. 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.
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,” Mr Gandhi tweeted today. 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.”
(With Agency Inputs ).