Government revises FDI Policy, bar automatic investments from neighbouring countries

FDI Policy Revised: The Central Government revised the FDI policy making it difficult for overseas investment from neighbouring countries into Indian firms. The decision comes in the backdrop of COVID-19 crisis during which might invite opportunistic investment in Indian countries from neighbouring countries. According to reports, the changes in India’s FDI policy are in line with similar measures undertaken by many European countries which aims to restrict foreign investments from China during the on-going crisis and market disruption due to it.

New Rules Apply to India’s Neighbourhood Countries

The revised rules of FDI policy are applicable only to the countries that are in India’s neighbourhood and share a common land border with India. This includes China and other nations such as Nepal, Bhutan and Myanmar. The Commerce and Industry Ministry today released a brief press note which confirmed the changes in the new FDI rules.

Two Routes for FDI in India

According to the Commerce and Industries Ministry guidelines, foreign investors can invest in Indian companies through two primary modes or routes i.e. automatic route, which doesn’t require any approval from the central government and the government route – i.e. the one which requires firms to first seek a go-ahead from the ministry to allow foreign investment. Earlier, a barring a few strategically important sector, FDI was allowed through automatic rule. However, now with the changes in the Foreign Direct Investment Policy, all investors from India’s neighbourhood will need to seek prior approval for investing in Indian firms, irrespective of the type or firm and the sector they operate in.  

On similar lines, to avoid hostile takeovers of Indian firms, the government has also announced that transfer of ownership in an FDI deal that benefits any country that shares a border with India will also need government approval.

Currently, there are 17 sectors including defence, telecom and pharmaceuticals that need government approval if any company from abroad wants to invest beyond a certain percentage.