FDI Guidelines Revised To Curb Opportunistic Takeovers Amid Covid-19

The government said it has reviewed the extant FDI policy to regulate acquisitions during the Covid-19 crisis

The investments from India’s land-sharing neighbours can be done only after receiving government approval

Foreign investments are considered crucial for Indian startups as a source of capital and market access

In a bid to minimise the business impact of the pandemic, the Department for Promotion of Industry and Internal Trade (DPIIT) has revised the rules of foreign direct investment (FDI) in India to curb opportunistic takeovers or acquisitions of Indian companies and tech startups due to the current COVID-19 pandemic.

In a Press Note (3), DPIIT said that the government of India has reviewed the extant FDI policy to minimise acquisitions that businesses might be forced into due to the revenue impact from Covid-19.

The notification says that an entity of a country which shares a land border with India can invest only after receiving government approval. “However, an entity of a country, which shares a 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,” the note stated.

The new rules will also apply to ‘the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly,’ the DPIIT has said. Foreign investments are considered crucial for India, which needs billions of dollars for overhauling its infrastructure sector such as ports, airports and highways to boost growth. Sustainable and regular revenue flow is extremely vital to sustain long-term in the digital insurance sector.

Earlier, the concerns arose that the possibility of a global recession in the current year has made the future ambiguous for sectors like IT and services, which receive the maximum FDI. The services sector that includes financial, banking, insurance, non-financial / business, outsourcing, R&D, etc receive 18% of the total FDI received in the country, according to government data.

The IT services and telecommunications sectors receive the second and third highest FDI. Automobiles, power, chemicals, and drugs & pharmaceuticals sectors also come in the top 10 highest recipients of the FDI.

The fears of takeovers come amid the disruption caused in the regular businesses of startups. Several startups are already facing troubles raising fresh funding and experts have speculated several M&As going forward for businesses to survive the pandemic.

As per DataLabs by Inc42 estimates, between 2014 to 2019 the total capital inflow by China-based investors in Indian startups was over $27 Bn. Two of the prominent Chinese investors in India are — Alibaba and Tencent, which have stakes in Indian Unicorns such as Paytm, Zomato, Bigbasket, Hike, Flipkart, MX Player, BYJU’s and others.

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