New investment policy: Revised FDI Norms

New investment policy: Revised FDI Norms

Part of: GS Mains III – Indian Economy and issues related to it; Security issues 

Context: 

• In April, the current government made it mandatory for countries which share a land border with India get prior government approval for foreign direct investments (FDI). 
• Department for Promotion of Industry and Internal Trade (DPIIT) notified the new FDI policy which said – “…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 is a citizen of any such country, can invest only under the Government route.” 
• The move is aimed at “curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID­19 pandemic. 
• Investors from countries that are not covered by revised FDI new policy only have to inform the Reserve Bank of India after the completion of a transaction rather than seek prior clearance from the administrative ministry. 

Do you know? 

• Earlier, FDI was allowed in non-critical sectors through the automatic route without the MHA’s nod. 
• Prior government approval or security clearance from MHA was required for investments in critical sectors such as defence, media, telecommunication, satellites, private security agencies, civil aviation and mining and any investments from Pakistan and Bangladesh. 

200 proposals from China wait for security clearance by MHA 

• About 200 investment proposals from China are awaiting security clearance from the Ministry of Home Affairs (MHA). 
• However, none of the proposals have been cleared so far. 

Key facts: 

• China has been India’s largest trading partner for many years in a row with cumulative investment in India exceeding $8 billion.  
• India shares land borders with Pakistan, Afghanistan, China, Nepal, Bhutan, Bangladesh and Myanmar. 

Amendment to General Financial Rules, 2017 

• Last week, the Centre amended the General Financial Rules, 2017 
• The amendments aim to enable imposition of restrictions on bidders from countries which share a land border with India in relation to public procurement for reasons of national security and other factors directly or indirectly related to the country’s defence.