India Tweaks FDI Policy to Curb Opportunistic Acquisition of Firms Amid COVID-19

In a statement, China objected to the policy change


The Ministry of Commerce and Industry has revised its Foreign Direct Investment (FDI) policy intending to curb takeovers or acquisitions of Indian companies during the ongoing coronavirus pandemic.

A Foreign Direct Investment is an investment that allows an entity to have controlling ownership in a business located in another country. The majority of the renewable expansion in the country has been made possible with the help of foreign direct investment. Foreign direct investment in India’s renewable energy sector has been gradually increasing over the past five financial years. The FDI inflow has increased significantly since the formation of Invest India, a program formed in 2009 under Section 25 of the Companies Act 1956 for the promotion of foreign investment in the domestic market. In the non-conventional energy sector, the FDI inflow during FY 2014-15 stood at $615.95 million, which increased to $776.51 million in the next fiscal year. In FY 2016-17, the FDI in the domestic market reached $783.57 million, and it went up to $1.2 billion in FY 2017-18. Further, the inflow increased to $1.44 billion in FY 2018-19.

According to the FDI policy, a non-resident entity can invest in India, subject to the FDI policy except in those sectors or activities which are prohibited like defense, space, atomic energy.

The revised policy now says that any investment by an entity of a country that shares a land border with India or where the beneficial owner of investment is a citizen of any of those countries will need government approval. Earlier, only Bangladesh and Pakistan were under this category, which has now been expanded to all neighboring countries sharing the border with India.

India shares land borders with seven neighboring countries of Pakistan, Bangladesh, China, Nepal, Myanmar, Bhutan, and Afghanistan.

Further, any transfer in the ownership of any such existing or future FDI will also require the government’s approval.

According to reports, other countries like Germany and Australia have also tightened the FDI process amid a rising concern across the globe that Chinese companies are investing in those firms that have been severely hit in the wake of the COVID-19 outbreak.

Meanwhile, the Chinese Embassy in India has issued a statement pointing out that the revised FDI policy is making it difficult for companies from countries sharing land borders with India, including China, to invest in the country.

The spokesperson of the Chinese Embassy in India, Counselor Ji Rong, said, “Where companies choose to invest and operate depends on the country’s economic fundamentals and business environment. Facing the economic downturn caused by COVID-19, countries should work together to create a favorable investment environment to speed up the resumption of companies’ production and operation. The additional barriers set by the Indian side for investors from specific countries violate the World Trade Organization’s (WTO) principle of non-discrimination and go against the general trend of liberalization and facilitation of trade and investment.”

Further, he added, “More importantly, they do not conform to the consensus of G20 leaders and trade ministers to realize a free, fair, non-discriminatory, transparent, predictable, and stable trade and investment environment, and to keep our markets open. Companies make choices based on market principles. We hope India would revise relevant discriminatory practices, treat investments from different countries equally, and foster an open, fair, and equitable business environment.”

According to the statement, as of December 2019, China’s cumulative investment in India has exceeded $8 billion (₹608.5 million), far more than the total investments of India’s other border-sharing countries.

“The impact of the policy on Chinese investors is clear. Chinese investment has driven the development of India’s industries, such as mobile phones, household electrical appliances, infrastructure and automobiles, creating a large number of jobs in India, and promoting mutually beneficial and win-win cooperation. Chinese enterprises actively made donations to help India fight COVID-19 epidemic,” said Rong.

India is currently under a lockdown, which has affected the economy, bringing many companies to a standstill. There have been supply-chain disruptions, construction issues, among others, for the renewable industry. In its recent webinar, Mercom discussed the impact of Coronavirus on India’s renewable companies in detail.

To curb the COVID-19 outbreak in the country, the Indian government has taken several initiatives and measures to boost the economy in these testing times. You can stay up to date with all COVID-19 related updates for the renewable industry here.


Get the most relevant India solar and clean energy news.