New Delhi: The central government has stepped up its efforts to prevent takeover of Indian entities by Chinese firms during the coronavirus outbreak.
The government on Saturday made its prior approval mandatory for foreign direct investments (FDI) from countries that share land border with India to curb "opportunistic takeovers" of domestic firms, a move which will restrict FDI from China.
"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," according to a press note issued by the Department for promotion of Industry and Internal Trade (DPIIT).
Under government route, foreign investor has to take prior approval of respective ministry/department. Through automatic approval route, the investor just has to inform the RBI after the investment is made.
"These times should not be used by other countries to take over our companies," a senior government official told Reuters.
Similar restrictions are already in place for Bangladesh and Pakistan. But up to now, they have not applied to China and India's other neighbours including Bhutan, Afghanistan, Myanmar and Nepal.
"This will certainly impact sentiment among Chinese investors. However, greenfield investments will not be impacted," said Santosh Pai, a partner at Indian law firm Link Legal that advises several Chinese companies.
Australia has also said all foreign investment proposals will be assessed by a review board during the coronavirus crisis to prevent a fire sale of distressed corporate assets. Germany has taken similar measures.
Chinese FDI in India stands at $6.2 billion
A February report by research group Gateway House said Chinese foreign direct investment into India stood at $6.2 billion.
According to the DPIIT data, however, India received FDI from China worth $2.34 billion (Rs 14.846 crore) between April 2000 and December 2019. During the same period, India has attracted Rs 48 lakh from Bangladesh, Rs 18.18 crore from Nepal, Rs 35.78 crore from Myanmar, and Rs 16.42 crore from Afghanistan. There are no investments from Pakistan and Bhutan.
China's Bytedance has plans to invest $1 billion in India, while automakers including Great Wall Motor Co Ltd and MG Motor, a unit of China's SAIC, have said they intend to invest millions.
Delano Furtado, a partner with law firm Trilegal, said the notification may also impact Chinese companies with existing investments in the country.
"Any follow-on investments in those entities may now require approvals," he said.
India's notification also said government approval would also be needed to change the ownership of an Indian entity that had existing foreign investment.
Currently such a norm was there for investments coming from Pakistan. A company can invest in India, subject to the FDI policy except in those sectors/activities which are prohibited.
Nangia Andersen LLP Director Sandeep Jhunjhunwala said Chinese tech investors have put an estimated $4 billion of greenfield investments into Indian start-ups, as per the estimates of India-China Economic and Cultural council.
"'Such is their pace that over the last few years, 18 out of India's 30 unicorns are Chinese-funded. Overall, time is right for India to safeguard longer-term considerations and protect its technology ecosystem by blocking hostile deals and effectively dealing with the looming challenge posed by Chinese tech companies," he said adding SEBI had earlier sought details from custodians regarding investments coming from China into Indian stock markets.
Chinese central bank - People's Bank of China - has recently hiked its stake in mortgage lender HDFC Ltd to 1.01 per cent.
Although FDI is allowed through automatic route in most of the sectors, certain areas such as defence, telecom, media, pharmaceuticals and insurance, government approval is required for foreign investors.
There are nine sectors where FDI is prohibited and that includes lottery business, gambling and betting, chit funds, Nidhi company, real estate business, and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco.
During April-December 2019-20, FDI into India increased by 10 per cent to $36.77 billion.
(With agency inputs.)