Critically examine the steps taken by the Government of India to stop opportunistic takeover by firms from countries with which India has border tensions.
The Central Government has recently made imperative changes in FDI policy putting brakes on deep pocketed Chinese companies and its sovereign funds looking to do bargain-hunting in India during the current COVID-19 times along with other neighbouring countries with which India shares its land borders.
Government approval is required in all FDI proposals coming from neighbouring countries with which India shares its land borders. This would mean China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan and Afghanistan cannot come under the ‘automatic route’ and will be approved on a case-to-case basis.
Purpose is not to discourage FDI but bringing them under government lens so as to curb opportunistic takeovers of Indian companies.
Not only would fresh FDI investments need Government approval, even share transfers of existing investments into beneficial ownership for firms in those seven Countries would henceforth require Indian Government’s prior approval.
This latest move by the Central Government is being widely hailed across political parties and by economy watchers as prudent and proactive step in these trying COVID-19 times. It is a significant move as China might try to acquire Indian companies taking benefit of fall in equity prices.
This shield would also apply to companies in consumer retail and automotive sectors where FDI was under the automatic route.
However, there will be a temporary impact on investment flow to start-ups due to the curbs imposed by the government. The government, at the same time, is also taking steps to reduce import dependence on China and boost domestic manufacturing.
Overall, time is right for India to safeguard longer term considerations and protect its technology ecosystem by blocking hostile deals and effectively dealing with looming challenges.