COVID 19 UPDATE: Government of India Reviews FDI Policy To Avoid Acquisitions Of Indian Companies

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Government of India, Ministry of Commerce & Industry has notified changes in FDI Policy to avoid takeover acquisitions of Indian firms by Chinese giants due to the current COVID-19 pandemic. According to new policy investments from any country which shares a border with India will be routed through the Government Approval route and not through Automatic Route.

Present Policy under 3.1.1 states that a non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defense, space, atomic energy and sectors/activities prohibited for foreign investment.

 Revised Policy states that 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 a 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. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defense, space, atomic energy and sectors/activities prohibited for foreign investment.

In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the para 3.1.1(a) and such subsequent change in beneficial ownership will also require Government approval.

The notice further stated that The decision will take effect from the date of (Foreign Exchange Management Act notification. (FEMA)

Recently, Small and medium industries wrote a letter to the central government fearing takeovers from Chinese investors at a time during the COVID-19 crisis. The letter requested the Centre to temporarily halt FDI through the automatic route for 1,000 industries with 16 sectors including defense and telecom, requiring government scrutiny.

The global outbreak of pandemic novel Coronavirus, COVID 19 has significantly hampered the functioning of all sectors including institutions, commercial establishments, offices & various manufacturing units which are also at standstill. The outbreak of Covid19 is also resulting in the shutdown of factories, challenging job conditions, and supply chain disruption. With these impacts, more businesses with exposure to China are likely to see the country as a potential risk factor, according to Global Data.

Recently,The Ministry of Home Affairs (MHA) issued revised guidelines in which it has permitted the construction of renewable energy projects. It has asked states & UTs to ensure their implementation at ground level and create awareness about them in public. New guidelines were made in an attempt to restrain the coronavirus epidemic in the country during the lockdown.The revised guidelines were released following the government’s decision to extend the lockdown till 3rd May 2020. To mitigate hardship to the public, select additional activities that will come into effect from 20 April 2020, The ministry in its order stated.

Ministry of New & Renewable Energy (MNRE) on 20.03.2020 has issued the circular on-time extension in the scheduled commissioning date of RE projects considering disruption of the supply chains due to the spread of coronavirus in China or any other country as a force majeure event. The circular stated that Ministry of Finance has clarified that the disruption of the supply chains due to spread of coronavirus in China or any other country should be considered as a case of natural calamity and Force Majeure Clause (FMC) may be invoked, wherever considered appropriate, following the due procedure. 

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