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Govt to vet Chinese stakes in India to avert takeovers
The target of this move, however, is clear since the other neighbours with which India shares a land border – Pakistan and Bangladesh – have already been under such scrutiny due to national security reasons.
All investments from China will now be subjected to scrutiny in India, according to a new government order revising the foreign direct investment (FDI) policy to curb “opportunistic takeovers/acquisitions of Indian companies due to the current Covid-19 pandemic”.
The move comes a week after housing finance lender HDFC said in a regulatory filing that China’s central bank had raised its stake to over 1%, a disclosure that prompted political leaders such as Congress MP Rahul Gandhi to urge the government for steps to protect Indian companies.
Investments from an entity in a country that shares a land border with India will now require government approval, according to the Department for Promotion of Industry and Internal Trade (DPIIT) notification issued on Friday, which did not name China.
The target of this move, however, is clear since the other neighbours with which India shares a land border – Pakistan and Bangladesh – have already been under such scrutiny due to national security reasons.
The order also requires government’s approval in transferring ownership of a domestic company to any “existing or future” foreign investor belonging to these countries.
“The change in the policy will now make it mandatory for all foreign investment from China, Pakistan and Bangladesh to go through government’s scrutiny. So far, permission was mandatory only for investments coming from Pakistan and Bangladesh,” according to an official who asked not to be named.
Bangladesh, China, Pakistan, Bhutan, Nepal and Myanmar share borders with India, but there are some exemptions for Nepal- and Bhutan-based entities, this person added.
Shortly after the announcement, Congress leader Gandhi said in a tweet: “I thank the government for taking note of my warning and amending the FDI norms to make it mandatory for government approval in some specific cases”.
Indian shares, in line with global indices, have tanked since the Covid-19 pandemic began taking hold in early March. The index Sensex has lost over 17% since March 2, the day the first new Covid-19 cases were detected in the country.
Experts said the takeover threat is not completely ill-founded. Vikram Doshi, partner, tax and regulatory, at global consultancy firm PwC India said, “Covid-19 will impact several businesses, especially ones that are highly leveraged. It will open up takeover opportunities in many sectors.”
“This press note is an attempt to place a check and give the government an opportunity to review such takeovers and investments coming into India from specific jurisdictions,” he added.
Atul Pandey, partner at law firm Khaitan & Co said, “The recent notification by 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.”
“However it is important to note that this notification will have the force of law once necessary amendments are introduced to the relevant FEMA [Foreign Exchange Management Act] regulations. Similar steps are also being taken by the European Union and other jurisdictions like Australia,” he added.
