Review of Foreign Direct Investment (FDI) Policy Due to Current COVID-19 Pandemic
The Government of India (GOI) released a Press Note dated 17/04/2020 revising the existing FDI policy for Eligible Investors (Para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017) as:
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Investment: An entity, citizen or beneficial owner, based in a country which shares land border with India can invest only under the Government route.
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Transfer/Change in Beneficial Ownership: In the event of transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly to any entity, citizen or beneficial owner, based in a country which shares land border with India will also require Government approval.
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A citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.
Note
Countries which shares Land Border: India shares Land Borders with 7 contries namely- Pakistan, Bangladesh, China, Nepal, Myanmar, Bhutan and Afghanistan.
Analysis
The Government of India (GOI) has revised the extant FDI policy to discourage opportunistic investment in Indian companies by neighboring countries in the midst of the COVID-19. The amended policy even put a bar on beneficial ownership in Countries which share Land Borders without Government approval, thereby protecting the possible takeovers of Indian entities. It has been observed globally that transactions pertaining to purchase of assets at low valuations by Chinese firms and institutions have increased recently. Therefore, such amendment in an existing FDI policy can be a step to protect Indian market.