DPIIT examining suggestions on FDI restrictions from bordering nations

Amiti Sen New Delhi | Updated on May 12, 2020 Published on May 12, 2020

A decision on appropriate response to be taken in consultation with Finance Ministry, RBI, say officials

The Department for Promotion of Investments and Internal Trade (DPIIT) is examining various suggestions that have come in from stakeholders, including domestic and foreign investors, after the recent amendment to the Foreign Direct Investment (FDI) policy placing restrictions on flows from China and six other bordering nations.

Further changes or clarifications to the FDI policy may be announced, if needed, in consultation with the Finance Ministry and RBI, a government official has said.

“There are a number of suggestions that have poured in after the amendment to the FDI policy was notified last month. Numerous clarifications have also been sought by stakeholders. Some have suggested that there should be more tightening of the policy while others have suggested that it should be made more liberal,” the official told BusinessLine.

The DPIIT is looking into the merits of the various proposals and wherever necessary amendments could be made to the policy, the official added.

On April 19 2020, the government announced amendments to the FDI policy stating that an entity of a country sharing the land border with India (including China and six others), 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.

The press note specified that the amendment is to curb opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic.

If there is a direct or indirect transfer of ownership of any existing or future FDI in an entity in India, resulting in the beneficial ownership falling within the purview of the conditions mentioned above, such a change in beneficial ownership will also require the government’s approval, it said.

“There are queries on how beneficial ownership should be defined. Also, some say that the term `indirect transfer’ should be better defined so that there is no scope for confusion,” another official told BusinessLine.

Some investors want clarity about whether the restrictions announced by the government would be limited to FDI or does it also intend to cover investments by a Foreign Portfolio Investor registered with SEBI, he added.

There are also enquiries on whether India will set a 10 per cent 'beneficial ownership' cap for FDI flowing from China and the six other countries beyond which government clearance would be needed.

“The DPIIT will hold discussions with the Finance Ministry and the RBI on many of these issues and take a decision on what is to be done,” the official said.

Published on May 12, 2020

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