NEW DELHI: The Government of India has swiftly moved to block deep-pocketed Chinese entities from mounting opportunistic takeovers of vulnerable, pandemic-hit Indian firms. On Friday, the Ministry of Commerce and Industry moved a notification amending its Foreign Direct Investment (FDI) policy, making government approval mandatory for any investment from countries sharing a "land border" with India.
The notification comes soon after several sections of the industry warned the Centre that heavily capitalised Chinese entities and funds were shopping for vulnerable Indian companies laid low by the COVID-19 pandemic.
The Centre's amendment seems clearly aimed at preventing such takeovers by Chinese entities, since out of the seven countries India shares a land border with, investments from Pakistan and Bangladesh already required government approval. Excluding China, the rest -- Afghanistan, Nepal, Bhutan and Myanmar -- are insignificant sources of FDI into India and aren't generally perceived as financial national security threats.
The earlier policy had allowed FDI through the automatic route in over 1,000 categories, except for 16 sectors including defence and telecom.
The newly amended policy now says that "an entity of a country which shares a land border with India, or where the beneficial owner of an investment into India is situated in… can invest only under the government route".
This condition shall also apply to the transfer of ownership of FDI, which "directly or indirectly" results in beneficial ownership falling to entities in one of these countries, said the notification.
The move comes after a series of developments and warnings from industry bodies to the Centre. For instance, March shareholding disclosures had revealed that the Chinese central bank now held a 1.01 per cent stake in one of India's biggest blue-chip financial firms: HDFC.
Other countries like Australia and Germany have also recently tightened FDI rules to prevent Chinese companies from indulging in predatory behaviour and buying out firms left vulnerable by the Covid-19 pandemic.