Ministry of Commerce and Industry reviews FDI policy to curb takeovers/acquisitions of Indian companies due to COVID-19

FDI

The current COVID-19 pandemic situation had sent the entire world into a frenzy. Centers of trade have been shut and streets that were earlier bustling with activities have been rendered deserted. In order to avoid spread of the virus it is important to adhere to social distancing guidelines and break the chain, everything is at a standstill. India has been appreciated worldwide for taking quick measures at the right time in this fight against COVID-19

India has been in lockdown since March 25,2020 when it was announced by the Indian Prime Minister Narendra Modi through a television address. The lockdown is supposed to carry on till May 3, 2020. However, implementing a nation-wide lockdown does not come without its own hardships. In order to make lives easier for all citizens the government keeps making sure that rules and guidelines are continuously revised to keep up with the situation.

In a note dated April 17, 2020, the Department for Promotion of Industry and Internal Trade under the Ministry of Commerce and Industry released an amendment of the Foreign Direct Investment Policy. The government has reviewed the extant FDI policy in order to curb the opportunistic takeovers/acquisitions of Indian companies due to the current pandemic. As per the note, para 3.1.1 of the extant FDI policy as contained in the Consolidated FDI Policy, 2017 has been amended. 

The present position as per the policy states that a nonresident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh and Pakistan or an entity registered in both countries can only invest under the government route. Additionally, for Pakistan sectors/activities such as defense, space and atomic energy are prohibited for investment in addition to the sectors/activities already in that category.

The amended para 3.1.1 (a) states 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. The additional prohibitions for Pakistan still hold. Additionally, the amendment also states that the transfer of ownership of an existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the para 3.1.1 (a), the change will also require government approval.

The decision is supposed to take effect from the date of FEMA notification.