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India, review of Foreign Direct Investment policy amid current Covid 19 pandemic

The Government of India has reviewed the extant FDI policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic and amended para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017 as stated in the Press Note 3 of 2020, dated 17 April 2020.

According to the existing regulation:

Para 3.1.1. 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:

Para 3.1.1 (a) 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 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. 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.

Para 3.1.1(b) In the event of the transfer of ownership of any 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), such subsequent change in beneficial ownership will also require Government approval.

According to the revised paragraph, 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 after Government approval of the investment. As countries sharing land border with India are Bangladesh, China, Pakistan, Nepal, Myanmar, Bhutan and Afghanistan, it seems that the amendment relates mainly with investment made by Chinese entities or Chinese beneficial owners, considering also limitations already existing for entity and beneficial owners of Pakistan and Bangladesh and the fact that the other countries seems to not have companies or investors with financial means as large as China has.

It seems useful to note that the changes made to the Consolidated FDI Policy, 2017 apply to all economic sectors in which foreign investments are allowed and not only to sensitive sectors, while it seems that the amendments applies to both majority and minority investments in Indian companies.

For more information, it is possibile to contact Marazzi & Associati at the following email: a.noris@madv.eu

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Marazzi & Advisors employs a multidisciplinary and international team, with specialised expertise that complement each other.

Each Member of our team, depending on their knowledge and skills, directly follows a specific phase of the internationalisation process, so that every project always receives, in all its stages, the highest level of competence.