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The result of the novel coronavirus pandemic on the global economy is something beyond comprehension until countries, including India, come out of lockdown mode. In a move which is being received with enthusiasm for the most part in India amid fears of takeovers of Indian domestic industries, the Department for Promotion of Industry and Internal Trade (DPIIT) has, by Press Note No. 3 (2020 Series), amended the Foreign Direct Investment (FDI) policy for curbing ‘opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic’.

CA Dinesh Batra, CEO of D. Batra & Co. believes that the Government of India is now officially in a protectionist mode.

Effect/Implication of the amendment

The amendment to the FDI policy states, “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.”

The government has now shrunk the ambit of eligible investors. It has stated that entities from those countries that share a land border with India will now be allowed to invest only via approval route. This restriction will also apply even if the beneficiary of the investment is an entity situated in or a citizen of these countries. Though, India shares its land borders with countries including Pakistan, China, Nepal, Bangladesh, Bhutan, Myanmar and Afghanistan. It is important to infer that the rules have not only been tightened for fresh FDI but also for existing FDI. In case of transfer of ownership of any existing or future FDI where the direct or indirect beneficiary is from any of the above stated countries will also require a government approval. The amendment requires injecting certain investment through the government approval route only, and not through the direct route of investment. This would enable the government to monitor and keep an eye over the extent of these investments and give its approval, if it chooses to do so.

These amendments have been made only to foreign direct investments and not foreign portfolio investment rules. India will come out of COVID-19, and when it does, there is absolutely no doubt that it would be in India’s best interest to have ownership of its entities intact and in Indian control.

At D. Batra & Co, we assist our clients in setting up their businesses in India and ensuring they comply all statutory requirements in a timely manner. Click here to know more.