The Narendra Modi regime’s bold new policy for foreign direct investment (FDI) from border sharing countries is now in force legally. The new law came into effect post a Foreign Exchange Management Act (FEMA) notification which was released late night on April 22. The government had announced its intentions a few days earlier via Press Note 3 of 2020, which had raised many eyebrows, as it mandated prior government approvals for FDI from India’s neighbours such as Pakistan, China and Bangladesh.
Interestingly, the policy added that such an approval would also be required for deals where the beneficial or the ultimate owner of the investment, whether directly or indirectly, is from these neighbouring countries.
Apart from investments in specific sectors, government nod was required only for investments originating from Pakistan and Bangladesh.
Post investment by the People’s Bank of China in domestic financial powerhouse HDFC, it wouldn’t be naïve to believe that through this revised policy, the government is keen to scrutinise capital flows from China into India and exercise discretion where deemed fit. Through this pre-emptive move, the government also wants to avoid predatory behaviour by companies or investors from bordering nations, especially China, who would be eyeing Indian targets, which are struggling at cheaper valuations after the novel coronavirus, or COVID-19, pandemic.