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FDI Regulations 2020

FDI Regulations 2020

The Indian government has mandated that neighboring countries approve foreign direct investment (FDI). The revised foreign direct investment policy aims to curb opportunistic acquisitions/acquisitions by Indian companies caused by the current Covid-19 pandemic.

In India, foreign direct investment is allowed in two ways-through automatic channels (the company does not need government approval) or through government channels (the company needs approval from the center).

According to the new policy related to FDI in India:

  • National entities that have land borders with India or whose beneficial owner of investment in India are located or are citizens of any such country can only invest under government routes.
  • Transfer of ownership in foreign direct investment transactions that benefit any country bordering India will also require government approval.
  • India has land borders with Pakistan, Afghanistan, China, Nepal, Bhutan, Bangladesh and Myanmar.
  • Investors from countries not covered by the new policy only need to notify the Reserve Bank of India after the transaction, without prior permission from relevant government agencies.

Impact

  • Early foreign direct investment policies were limited to allowing only Bangladesh and Pakistan to pass through government channels in all sectors. The revised rules now place companies from China under the government route filter.
  • China’s footprint in the Indian business sector is expanding rapidly, especially since 2014.

Chinese investment in India

  • China’s net investment in India (US$1.6 billion in 2014) has increased five-fold in the next three years to at least US$8 billion (60,800 crore)-a significant shift from state-led investment to market-led investment in China’s private sector.
  • Official data underestimate the amount of investment: they can neither account for all Chinese companies’ acquisitions of shares in the technology sector, nor for China’s investments through third-party countries (such as Singapore).
  • For example, the US$504 million investment made by the mobile company Xiaomi’s branch in Singapore cannot be included in official statistics due to the measurement of investment.
  • It has been seen that despite several high-profile investments and acquisitions, Chinese companies have evaded investment scrutiny in India because their investments have attracted Western countries.
  • Another problem is that there is no clear separation between Chinese state-owned enterprises and private enterprises. They work closely together to achieve many goals.

Foreign Direct Investment

  • FDI is an investment by a party in one country to an enterprise or company in another country with the purpose of establishing lasting benefits.
  • Persistent interest distinguishes foreign direct investment from foreign securities investment. In foreign securities investment, investors passively hold foreign securities.
  • Foreign direct investment can be made by expanding the business abroad or becoming a company owner in another country.

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