With Covid-19 abated, time to roll back Press Note 3, 2020 restrictions
This article is authored by Bikash Narayan Mishra, former banker and senior advisor, IBA.
It can sometimes be useful to carve out a “then and now” scenario mapping to gauge changes on how the needle has moved on the scale of time. Some markers are more visible and pronounced than others.
There are striking dissimilarities between May 2020 and May 2023. Three years ago, the world was staring at an uncertain path as the Covid-19 pandemic swept through the world.
Last three years the pandemic devastated economies. Across the world, policy makers rummaged through options to save their economies and limit the debilitating consequences on lives and livelihoods.
India also came out with Press Note 3, aimed at curbing predatory takeovers by foreign entities, needs to be reviewed in the current economic situation.
As companies across the globe battled the uncertainty that the pandemic brought on in 2020, several economies began to raise concerns about opportunistic takeovers of entities stressed by pandemic in their country.
India introduced Press Note 3 (PN3) in 2020, which required all foreign direct investment (FDI) proposals from an entity based in a country that shares a land border with India, or where the beneficial owner of such FDI is situated in a country which shares a land border with India — both referred to as “restricted entities” — were brought under the government approval route.
The Press Note expanded the list of countries whose investors are no longer eligible to invest in India under the automatic route. Importantly, for start-ups, an investment in India now falls under the government route if it is from an entity whose "beneficial owner" is from such a bordering country.
The term beneficial owner has different meanings under different laws in India. Depending on how it is defined it could mean (i) an entity with a prescribed shareholding level in the investing entity (as is the case under the Companies Act of 2013) or (ii) the owner or holder of ultimate control over the investing entity (as defined under the Prevention of Money-laundering Act, 2002). A somewhat similar concept is also used by the Securities and Exchange Board of India to identify the ultimate beneficial owner for the purposes of certain securities laws.
It is a very different world now in May 2023. The pandemic’s in retreat. There’s now an unmistakable excitement and optimism about India, even at a time when large parts of the developed world stare at an imminent recession.
The Economic Survey 2022-2023 has put India’s medium-term Gross Domestic Product growth potential between 7-8%. The International Monetary Fund (IMF) says India will grow 6.1% in 2023-24 and accelerate further to 6.8% in 2024-25, firmly cementing India as a powerful growth engine. Economists agree that India is on track to be the third largest within five years.
More importantly, the World Health Organization (WHO) has declared that Covid-19 no longer represents a "global health emergency".
The statement marks an end to the pandemic and comes three years after it first declared its highest level of alert over the virus.
Reports suggested that virus' death rate had dropped from a peak of more than 100,000 people per week in January 2021 to just over 3,500 on 24 April.
The government has approved 98 foreign direct investment (FDI) proposals from countries sharing land border with India since April 2020 out of 423 received from sectors including trading and electronics.
On a net basis, FDI inflows into India fell 27% to $28.014 billion in FY23 from $38.59 billion in FY22. In the last 10 years, this is the first fall in FDI in the country.
This may be the right time to roll back some policies such as Press Note 3 2020 that were introduced as a precaution to shield the pandemic’s effect on the Indian economy.
The funding winter for Indian start-ups has lasted well into the sweltering summers. These enterprises are innovators and job generators. Adequate capitalisation of start-ups by removing policy barriers is necessary for the Indian economy to canter to its full potential.
This article is authored by Bikash Narayan Mishra, former banker and senior advisor, IBA.