Centre tightens FDI rules, makes Govt's nod mandatory for all FDIs from neighbouring countries

At present, a non-resident entity can invest in India subject to the FDI policy except in those sectors that are prohibited

Days after China’s Central Bank raised its stake in HDFC taking advantage of fall in its share prices, the Centre on Saturday rushed to amend the country’s foreign direct investment rules to curb opportunistic takeovers by neighbouring countries.

The department for the promotion of industry and internal trade under the commerce ministry said in a notification that all activities in which foreign investment is permitted, if being received from countries with which India shares land border, shall be under the government approval route.

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“A non-resident entity can invest in India subject to the FDI policy except in those sectors or activities, which are prohibited,” the notification said.

The move comes in the midst of a score of small and medium-size companies writing to the MSME minister seeking a temporary halt in FDI through automatic route. At present almost all sectors with exception of defence, telecom, atomic energy and certain others come through automatic route.

In the letter last week, they had raised the issue of Indian corporate sector being sold in distress to Chinese companies. With the valuations of companies taking a severe hit due to COVID-19 crisis, the government is understood to have undertaken a strict scrutiny of the FDI investments. The letter was forwarded to Prime Minister’s Office for further consideration.

The notification said that people or entities of Pakistan will now be allowed to invest in Indian companies, only under the government route, and will not be allowed to invest in defence, space or atomic energy sector.

At present, a non-resident entity can invest in India subject to the FDI policy except in those sectors or activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the government route.