Govt tweaks FDI rules to curb takeovers of Indian cos
In order to prevent opportunistic takeovers/acquisitions of Indian companies due to the Covid-19 pandemic and the consequent economic crisis it has triggered, government revised the FDI Policy, 2017. As per the revised rule, investments from China will now require a clearance from the Centre.
The notificiation by Department of Promotion of Industry & Internal Trade 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 move comes in the backdrop of the People’s Bank of China (PBoC) raising its stake in India’s largest non-banking mortgage provider HDFC. The Centre was chided over the fact that no alarm bells were raised when China’s central bank raised its stake in HDFC from 0.8 per cent to 1.01 per cent. HDFC bank defended itself stating that the existing rules only required disclosure when a foreign entity raised its stake beyond 1%.