The companies located in any country that shares a border with India will have to follow new Foreign Direct investment or FDI policy for neighbouring states. As per the Ministry, the government amends the extant FDI policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic. As per the notification:

The present position under 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.

Revised Position:

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.

Explanation

As we know that FDI in India is allowed under two modes- either through automatic route for in which company don’t need government approval or through the government route for which companies need to go from the centre approval.

As per the revised guidelines 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 and a transfer of ownership in an FDI deal that benefits any country that shares a border with India will also need government approval.

The previous FDI policy was limited to allowing only Bangladesh and Pakistan via the government route in all sectors. The revised rule has now brought companies from China under the government route filter. This step is taken after People’s Bank of China on April 12 had bought a 1% stake in India largest housing finance lenders- HDFC Ltd. This investment amounts to 1.75 crore shares in HDFC which has reportedly has been facing a receding trend in its shares since January 2020.  

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