Entities in countries sharing a land border with India will now have to seek government approval before investing in India, as per the new Foreign Direct Investment (FDI) rules released by the Centre on Saturday. In a press note shared by the Union Ministry of Commerce and Industry, the government said that the revised set of rules would prevent "opportunistic takeovers or acquisitions of Indian companies due to the COVID-19 pandemic."
The new set of rules come on the back of reports that Bank of China had acquired a one per cent stake in HDFC earlier this month, a deal that had set the alarm bells ringing in India’s power corridors.
Investment in India can be routed through two methods- automatic route, which doesn’t require any government permission whatsoever, and the government route, for which one needs the approval of authorities.
With the new FDI norms kicking in, any Chinese company wanting to invest in an Indian entity will require permission from the government.
The decision could have massive ramifications on the prospect of India-China trade ties in the coming days.
Overall, Chinese investments in India were to the tune of $26 billion, a significant increase since 2014, when they were around $1.6 billion, as per official data. Recent data points out that China has put money into 30 Indian start-ups, totalling around $4 billion. Chinese apps, including TikTok and Helo among others, are believed to be making millions of dollars in subscriptions from Indian users.
The earlier rules stated that only entities based out of Bangladesh and Pakistan were required to source their investment through the government route.
According to the ministry’s press note, "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 investment into India is situated in or is a citizen of any such country, can invest only under the government route,” it said.
"In an event of the transfer of ownership of any existing or future FDI in an entity in India... such subsequent change in beneficial ownership will also require government approval," said the note.
Congress leader Rahul Gandhi, who had called upon the government to tighten the FDI rules earlier this week, was quick to thank the authorities for heeding to concerns expressed by the domestic industry.
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