With eye on China, India amends FDI rules to bar automatic investments by neighboring countries

Biznextindia: In a significant development the government of India has amended its FDI rules to bar investments from neighbouring countries through the automatic route.

Though there is no mention of any specific neighbouring country, experts see this as a move to checkmate China.

The decision comes days after China’s central bank raised its stake in the Housing Development Finance Corporation (HDFC) to little over 1%. According to HDFCs regulatory filing, ‘the People’s Bank of China held 17.5 million shares (or 1.01 per cent) at the end of the March 2020 quarter..

According to the amended policy “.. An entity of a country, which shares land border with India or where the beneficial owner of an 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 defence, space, atomic energy and sectors/activities prohibited for foreign investment”.

According to the existing rule, “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 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 defence, space, atomic energy and sectors/activities prohibited for foreign investment”.