In an attempt to curb opportunistic takeovers/acquisitions of Indian companies, the Government of India issued Press Note No. 3 (2020 Series) dated April 17, 2020, restricting foreign direct investment from Neighbouring Countries after Covid 19. Prior to the implementation of this press note, any non-resident investor/entity could invest in India subject to the Foreign Direct Investment Policy, and only citizens/entities incorporated in either Bangladesh or Pakistan required the prior approval of the Government before undertaking any investment.
However, by way of the introduction of this press note, this restriction to procure the prior approval of the Government was broadened to include investments made by:
1. Any entity incorporated in a Neighbouring Country;
2. A citizen of a Neighbouring Country; or
3. A beneficial owner (who is a citizen of or situated in a Neighbouring Country).
Since the revision of the restrictions, the Indian Government has received a total of 382 proposals for Foreign Direct Investment (FDI) in India from Chinese investors out of which only 82 proposals have been accepted as of June 29’2022, as revealed through a Right to Information (RTI) (Source: Media reports).
It can be said that the government has accepted a cautious approach in evaluating and approving such proposals which has also caused a delay in the overall approval process. Moreover, deals getting government approval are generally those involving minority stake purchases that do not change control. Further, industries with a high capital demand, such as manufacturing, receive more FDI than e-commerce and finance.
The Indian government is exercising a lot of caution when it comes to applications involving politically exposed persons (PEPs) in China or Hong Kong. Also, the arrangements where the Chinese entity will get board representation or other passive control tools are not being viewed favorably.
Despite the approvals finally coming through slowly, the government has simultaneously tightened investment restrictions for Chinese businesses. The Ministry of Corporate Affair (MCA) has also brought a few measures to check and control the Chinese influence in the corporate sector.
