Changes notified for Foreign Direct Investment

On 17th April, 2020, Press Note 3 was released by the Department for Promotion of Industry and Internal Trade (DPIIT). Press Note 3 of 2020 revised the following earlier position:

• A non-resident entity could invest in India, subject to the FDI policy except the sectors/activities which were prohibited.
• A citizen of Bangladesh or an entity incorporated in Bangladesh could invest only under the government route.
• A citizen of Pakistan or an entity incorporated there could also invest only under the government route, except certain sectors such as defence where Pakistanis are not permitted to invest.

FDI by countries sharing land- borders with India

The revised position now includes all the land-bordering neighbors of India and not just Pakistan and Bangladesh. The new changes are as follows:

• 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,
• an individual who is a citizen of any such country,

can invest only under the Government route.

Additionally, if there is a transfer of ownership which results in beneficial ownership of a person or entity who falls in any of the aforementioned categories, such change in beneficial ownership would also be subject to government approval.

This has been deemed an important step because in light of the COVID–19 crisis, the Indian economy and companies are currently de-stabilized. Stock prices of various industries are falling, companies are facing liquidity crunches and earnings have also fallen drastically due to disruption in operations. While, this would provide the desired protection, it would have the effect of nothing more than an enhanced scrutiny. Routing investments through the government route does not mean banning all FDI from these nations. It just means that government approvals would be required. There are certain issues such as what about those companies whose parent companies are situated in any of the land-bordering countries. In order to receive remittances, they would have to undergo lengthy government procedures. If implemented effectively, this stance of the government would achieve fruitful results while not blocking out FDI.