Government approval mandatory for FDI from neighbouring countries 

Government approval mandatory for FDI from neighbouring countries 

Part of: GS Prelims and GS-II – International Relations & GS-III – Investment 

In News:

• In order to restrict Chinese investments, prior government approval has been made mandatory for foreign direct investments (FDI) from countries which share a land border with India.

Key takeaways:

• Revised FDI policy has stated that entities from countries which share a land border with India will now be permitted to invest only under approval route. 
• Previously, only investments from Pakistan and Bangladesh faced such restrictions.
• The revised FDI policy is aimed at preventing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic. 
• The rules shall apply to fresh as well as existing FDI. 
• Transfer of ownership of any existing or future FDI where the direct or indirect beneficiary is from these countries will also require government approval.
• This restriction will also apply if the beneficial owner of the investment is an entity situated in or a citizen of such countries.

Important value additions:

India’s FDI policy

• A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.
• India’s FDI policy allows foreign investment in certain sectors under the automatic route. 
• 100% FDI is permitted under the automatic route in manufacturing, oil and gas, greenfield airports, construction, railway infrastructure etc. 
• In other sectors, FDI is allowed under the automatic route upto a certain threshold, say 26% or 49%.
• Such conditions apply to defence, broadcast and print media, aviation and other sectors. 
• There is also a list of prohibited sectors, such as lottery, cigarettes, atomic energy where FDI is not permitted. 

India’s neighbouring countries

• India shares a land border with: 
  • China
  • Pakistan 
  • Bangladesh
  • Nepal 
  • Myanmar
  • Bhutan 
  • Afghanistan

Government approval mandatory for FDI from neighbouring countries

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