On April 18, the government amended the Foreign Direct Investment (FDI) policy to prevent opportunistic investment in Indian companies by neighbouring countries.
As per the new amendment, FDI investments into Indian companies from the neighbouring countries will now require a nod from the government instead of being on the automatic route, through which the Reserve Bank of India had to be informed after getting funds into the country by respective entities.
China was quick to accuse India of violating the World Trade Organization (WTO) principles of non-discrimination and are against free and fair trade.
"The move is not aimed at barring fundings from across the border. It only made a proper screening of proposals mandatory," a senior government official said.
The official said that there has been no violation of the respective Bilateral Investment Treaties (BITs), which have been terminated and that existing investments have not been negated retrospectively.
Also Read : FDI policy revision impact: Chinese investments in India may see a decline
"The new rules are applicable for investment already made into India prior to the termination of the treaty," the official said.
Some countries such as Australia and Germany have made similar moves. Australia has 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.
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The government has said that the changes in rules on investment were meant to curb opportunistic takeovers and acquisitions. Experts feel that the move is expected to have trade impact.
"A lot of startups are scouting for early-stage funding and quite desperately at that. What this will do is make the processes to reach out to foreign investors even more difficult," a trade expert who did not wish to be quoted, said.
As of December 2019, China's cumulative investment in India has exceeded $8 billion, far more than the total investments of India's other border-sharing countries.
Indo-China border trade between Sikkim and Tibetan Autonomous Region of China via Nathula Pass may be suspended for an indefinite period, BS Panth, Sikkim commerce and industries minister has said.
The trading session normally begins from first Monday of May, 2020 till the end of November.
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