Following Germany’s footsteps in restricting Chinese investment, the Indian government has amended the rules aimed at preventing “opportunistic takeovers” of Indian companies during the current COVID-19 pandemic.
The Ministry of Commerce and Industry says that foreign investments from countries with which India shares land border can only invest via the government-approved route. The new amendment includes countries like China, Pakistan Nepal, Bhutan and Myanmar.
"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 investment into India is situated in or is a citizen of any such country, can invest only under the Government route," the ministry said.
The transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in beneficial ownership falling within this restriction will require government approval, it added.
The move restricts investments from all neighbouring countries, which means that the government has ruled out direct or surrogate investment from China without scrutiny.
“The intention of the government is clear in wanting to evaluate Chinese investments on a case to case basis. However, it is important to note that this notification will have the force of law once necessary amendments are introduced to the relevant FEMA regulations. Similar steps are also being taken by the European Union and other jurisdictions like Australia,” said Atul Pandey, partner at law firm Khaitan & Co.
Evaluating the move, he said that the government primarily intends to stem any attempts by Chinese firms to take control of Indian firms which have been affected and weakened by COVID related lockdowns. Adding that SEBI has also begun reviewing FPI investments from Chinese funds over possible takeover concerns.
Concerned some global giants are lurking for opportunities to acquire strategic sectors in distress, Germany approved changes to its foreign investment laws on 8 April.
“As the current situation shows, we in Germany and Europe need to have our own competencies and technologies in certain areas,” said Economy Minister Peter Altmaier while approving the changes.
According to Gateway House research, Chinese tech investors have invested an estimated $4 billion in Indian start-ups. Such is their pace that over the last few years, 18 out of India’s 30 fastest growing companies have been Chinese-funded.