India has stepped up scrutiny of investments from companies based in neighboring countries, in what is widely seen as a move to stave off takeovers by Chinese firms during the COVID-19 pandemic.
The Indian Ministry of Trade said in a notification dated April 17 that the changes to federal rules on investment were meant to curb “opportunistic takeovers/acquisitions.”
It did not mention China.
Investments from an entity in a country that shares a land border with India would require Indian government approval, the ministry said, meaning they can not go through an automatic route.
“These times should not be used by other countries to take over our companies,” a senior government official told reporters.
Similar restrictions are already in place for Bangladesh and Pakistan, but up to now, they have not applied to China and India’s other neighbors with land borders: Bhutan, Afghanistan, Myanmar and Nepal.
“This will certainly impact sentiment among Chinese investors. However, greenfield investments will not be impacted,” said Santosh Pai, a partner at Indian law firm Link Legal, which advises several Chinese companies.
A report in February by research group Gateway House said that Chinese foreign direct investment into India stood at US$6.2 billion.
China’s ByteDance Ltd (字節跳動) has plans to invest US$1 billion in India, while automakers including Great Wall Motor Co Ltd (長城汽車) and MG Motor, a unit of China’s SAIC Motor Corp (上海汽車), have said they intend to invest millions.
Delano Furtado, a partner with law firm Trilegal, said that the notification might also affect Chinese companies with existing investments in the country.
“Any follow-on investments in those entities may now require approvals,” Furtado said.
India’s notification said that government approval would also be needed to change the ownership of an Indian entity that had existing foreign investment.
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