Government nod must for investment from China and its neighbours

NEW DELHI: India has clamped down on investments from China making prior government clearance mandatory for all forms investments, even indirect ones, from all countries sharing land border with the country.

The department for Promotion of Industry and Internal Trade on Saturday issued a press note 3 (2020 series) stating that foreign investments from countries with which India shares land border shall be under approval route. Also, transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in beneficial ownership falling within this restriction will require government approval.

The press note stated that this review of is for curbing opportunistic takeovers or acquisitions of Indian companies due to current Covid 19 pandemic.

The DPIIT and the ministry of home affairs have been in discussion over additional scrutiny for investments flowing in from some countries, but the latest trigger has been growing apprehensions over Chinese firms taking over Indian firms facing stress due to economic stress caused by Covid outbreak.

Congress leader Rahul Gandhi had last week expressed concerns on the issue.

“The massive economic slowdown has weakened many Indian corporates making them attractive targets for takeovers. The government must not allow foreign interests to take control of any Indian corporate at this time of national crisis,” Gandhi had tweeted.

His tweet was connected by many to Chinese central bank’s move to raise it’s stake to 1% stake in HDFC. The issue had dominated social media for sometime

This implies that investment even in a single share of a company via the FDI route from seven countries that share land border with India will need prior approval of the government. This approval will be mandatory for all sectors irrespective of the quantum of FDI permitted in them via automatic route.

India has over the years widened the opening for FDI, allowing overseas money into most sectors through the automatic route, having abolished the Foreign Investment Promotion Board in 2017.

Globally also countries have stepped up screening of FDI. The European Union in 2019 adopted a screening framework on the grounds of security and public order. The US had also stepped up scrutiny of Chinese investments in the country after engaging in a trade war over concerns about acquisition of American assets. Australia in March temporarily tightened its rules on foreign takeovers on concerns that strategic assets could be sold off cheaply as a result of the coronavirus crisis.

Experts say this would largely impact Chinese investments.

“The conversion from free markets to approval route for foreign investments coming directly or indirectly from China is a much expected move by the Government of India, amid meltdown caused by Covid -19, as news regarding takeover fears were all around. Essentially, all Chinese investments into India would now be under Government radar and vigilance,” said Sandeep Jhunjhunwala, Director, Nangia Andersen LLP.

Chinese tech investors have put an estimated USD 4 billion of greenfield investments into Indian start-ups, as per the estimates of India-China Economic and Cultural council, he said.” Such is their pace that over the last few years, 18 out of India’s 30 unicorns are Chinese-funded,” he added.

“Foreign investment in India from a foreign entity incorporated in or where the beneficial owner of such an investment into India is situated in/ is a citizen of any such country which shares the border with India can now be made only through the Government approval route. Earlier, the said condition was made for residents and entities incorporated in/ citizen of Bangladesh and Pakistan. Now the aforesaid restriction has been extended to Countries like China, Nepal, Burma, Myanmar, Bhutan and Afghanistan,” said Ankit Singhi of Corporate Professionals.

The new norms will come into effect from the date of notification under the Foreign Exchange Management Act.

Source Article

Lois C. Ferrara

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