UNIVERSITY OF PETROLEUM & ENERGY STUDIES,

SCHOOL OF LAW, DEHRADUN

ASSIGNMENT

INTERNATIONAL ECONOMIC LAW

Critically Analyze the recent FDI changes introduced by India with respect to
it’s neighboring Country

SUBMITTED BY: SUBMITTED TO:

DIVYANSH BHARGAVA Mrs. RUBY YADAV

R154216042 Asst. Professor

500052812

B.A.LLB (Constitutional Law) B2

Recently on 17.04.2020 Indian Government changes there Foreign Direct Investment norms for
the neighboring countries including of China. For restricting the China from investing in India,
Indian Government makes new rules that it is mandatory for investor of neighboring country
(who share a land border with India such as Afghanistan, Nepal, Pakistan, Bangladesh,
Myanmar, Bhutan, China and Sri Lanka ) to take prior approval of Indian Government for
Foreign Direct Investment (FDI). Before this rule an investments which is doing from Pakistan
and Bangladesh has to faced such type of restrictions.

Indian Government’s reason for changing the Foreign Direct Investment is to “curb opportunistic
takeovers and acquisitions of Indian Companies due to the Covid-19 pandemic. Indian
Government makes this tighten norms after seeing reports that China eyeing to take over several
Indian entities because these entities fall in their valuation due to the Covid-19 pandemic.

Till now, a non resident entity or a foreign investor of land border sharing country with India or a
citizen of any country can invest in India only according to Government or Foreign Direct
Investment path/route except sectors or activities which are prohibited in India. Countries like
Bangladesh and Pakistan have to face many restrictions for taking approvals from Government
for Foreign Direct Investment in defence, space and atomic energy as well. Countries which are
not covered under this new policy of India for FDI. they have to only inform to RBI after a
transaction rather than asking for prior permission from the concerned government department.

It is also mention in new policy that it is mandatory for taking government approval for transfer
of ownership of any existing or future FDI. in an Indian entity for those restricted countries. This
new policy comes into force from the date of the Foreign Exchange Management Act
Notification.

This decision is taking by Indian Government after People’s Bank of China (PBOC) raised its
stake in the home lender from 0.8% to 1.01& in Housing Development Finance Corporation
Limited (HDFC) in the March quarter through open market purchase.

Whereas China said that India which change in FDI norms violates the WTO’s principle of non-
discrimination and new policy for FDI are against the general trend of free trade.

Reports or surveys of various agencies say that after global covid-19 pandemic global economic
recession will start. Protecting from recession, India change its FDI norms to curb opportunistic
takeovers from its border sharing countries by making policy that such countries have to take
prior approval mandatorily from Indian Government for FDI. It will be interesting to see how
India will tackle and regulate the uncertainty of investments from China in coming future after
changing in FDI norms.

“Given the macro situation, it is a measure to protect vulnerable companies, with possibly
low valuations, from unwelcome takeovers. However, while the DPIIT has set out its policy
stance, the Non Debt Rules that the Ministry of Finance will publish in this regard is
awaited, as that will set out the different scenarios which will trigger the Central
Government approval requirement and other considerations regarding foreign investments
from our neighbours," said Aarthi Sivanandh who specialises in corporate law at Partner.