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INDIA RESTRICTS CHINA FROM FDI IN INDIAN COMPANIES THROUGH AUTOMATIC ROUTE


Department for Promotion of Industry and Internal Trade (DPIIT)  released a Press Note dated 17th April 2020 stating that any citizen or entity incorporated in a country which shares borders with India i.e. Pakistan, Bangladesh and China will be allowed to invest in India only after getting approval from Government of India. This means that the above countries cannot invest in India through automatic route.


Earlier the above restriction was limited to Bangladesh and Pakistan. But after the release of Press Note, China has also been included with the object of curbing opportunistic takeovers/acquisitions of Indian companies due to the

current COVID-19 pandemic.


The press note is as follows:

Press Note No. 3(2020 Series)


Subject: Review of Foreign Direct Investment (FDI) policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic.



The Government of India has reviewed the extant FDI policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic and amended para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017 as under:


1. Present Position


Para 3.1.1: A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.


2. Revised Position


Para 3.1.1: 3.1.1(a) A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, 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. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.


3.1.1(b) In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the para 3.1.1(a), such subsequent change in beneficial ownership will also require Government approval.

3. The above decision will take effect from the date of FEMA notification.


Copy forwarded to: 1. Press Information Officer, Press Information Bureau- for giving wide publicity to the above Press Note. 2. Joint Secretary, Department of Economic Affairs, For suitably incorporating the North Block, New Delhi policy changes in Foreign Reserve Bank of India, Foreign Exchange Department, Exchange Management (Non- 3. Mumbai Debt Instruments) Rules, 2019, the relevant schedules thereof and FIRMS portal. 4. NIC Section in the Department for Promotion of Industry and Internal Trade - for uploading the Press Note on DPIIT's website. 5. Hindi Section, DPIIT- for providing Hindi version.




CA. Sachet Agarwal

Partner International Taxation

+91 9619510330

sachet@vrac.in