India amends FDI policy to prevent opportunistic acquisitions by neighbouring countries
This article was written by Shubhangi Pathak, Partner at Kennedys associate firm Tuli & Co. For further information, please contact Shubhangi Pathak or Celia Jenkins.
On 17 April 2020, the Indian government introduced amendments to the consolidated Foreign Direct Investment policy (FDI policy), with a view to curbing opportunistic takeovers and acquisitions of Indian companies due to the current COVID-19 pandemic.
Formerly, the FDI policy permitted a non-resident entity to invest in India under the automatic route, subject to specified limits. However, as an exception, an entity or a citizen from Bangladesh or Pakistan was required to obtain prior permission of the Indian government before making any investment in the country.
The revision enlarges the exception and now stipulates that any entity of a country sharing a land border with India can only invest after obtaining the approval of the Government. The exception also applies where potential investors are situated in, or are citizens of countries sharing a land border with India. It is relevant to note that countries that share borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan.
On 22 April 2020, the Foreign Exchange Management (non-debt instruments) Amendment Rules 2020 were notified, thereby amending the foreign exchange framework in line with the press note.
Press reports indicate that one of the primary reasons behind the Indian government introducing this amendment was to avoid opportunistic acquisitions and takeovers of Indian entities specifically by their Chinese counterparts in the wake of the coronavirus pandemic.
It is likely that this amendment to the FDI policy will impact investment from Chinese entities and firms into India, as the same will now be scrutinized on a case-by-case basis. This may impact the decisions of Chinese entities, which may find the approval route to be cumbersome and time-consuming. However, in view of the unprecedented socio-economic conditions facing the world currently, such measures are not only in keeping with similar actions being taken by authorities across the globe (such as Australia), but may also be required to safeguard the long-term interests of Indian industries.
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