The government has brought about changes in the Foreign Direct Investment (FDI) norms to prevent opportunistic takeovers of Indian firms.
The Centre, through the Department for Promotion of Industry and Internal Trade under the Ministry of Commerce & Industry on Friday issued revised FDI policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic.
A revised list of guidelines were issued by the Ministry of Commerce and Industries to check the transfer of ownership and surplus investments into industries or sectors by individuals or companies based in bordering nations. Under the new norms, foreign investment from countries with which India shares land borders will be subjected to strict scrutiny and will be permitted only under the government route. The transfer of ownership of any existing or future FDI, which may result in changes to the beneficial ownership, will also require the Indian government’s approval, said the notification issued by the Department for Promotion of Industry and Internal Trade (DPIIT).
At present, a non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. Further, 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.
Revised position under the FDI policy now says that an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route and transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly will now also requires Government of India’s approval.
FDI policy is governed by the provisions of Foreign Exchange Management Act 1999 by Government of India. The Act was made to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Section 3 of the FEMA describes “Dealing in foreign exchange”, such as: –
1. deal in or transfer any foreign exchange or foreign security to any person not being an authorised person;
2. make any payment to or for the credit of any person resident outside India in any manner;
3. receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner.;
4. enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person.
The Government of India has amended the certain para of extant FDI policy as contained in Consolidated FDI Policy, 2017 for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic.
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