Limit China FDI to 25%, says DEA

The threshold could apply to beneficial ownership under PMLA, FPI norms.

The department of economic affairs has recommended that the beneficial ownership threshold for foreign direct investments should be set at 25% to determine if they need to go through an approval process amid government efforts to restrict Chinese investments in India.

On April 22, the Centre issued a notice under the Foreign Exchange Management Act saying investments originating from seven neighbouring countries, including China, must seek prior approval of the government.(Bloomberg)

Tarun Bajaj, secretary DEA, said on Thursday that the department has recommended beneficial ownership could be set as per its definition under foreign portfolio investor (FPI) norms and Prevention of Money Laundering Act (PMLA). This recommendation has been made to the Department of Promotion of Industry and Internal Trade (DPIIT).

Under FPI norms beneficial ownership is set at 25% of the total assets, or on the basis of the fund manager. Under PMLA the threshold is 25%.

“FDI restriction on China investment... is more about national security and integrity and all our interests are secondary to that. But we have given a suggestion on definition of beneficial ownership as per the regulations under FPI on PMLA,” Bajaj told a capital markets summit organised by industry body Federation of Indian Chambers of Commerce and Industry (Ficci).

On April 22, the Centre issued a notice under the Foreign Exchange Management Act saying investments originating from seven neighbouring countries, including China, must seek prior approval of the government. The wording of the notification would have rendered a Chinese investor holding even a single share in the investing entity to qualify as ‘beneficial owner’. Many global private equity and venture capital funds tend to raise some amount of capital from Chinese entities.