07/08/20

ASIA: Indian Govt to soon clarify on beneficial ownership issue under new FDI rule.

As published on cnbctv18.com, Thursday 6 August, 2020.

The government will soon issue a clarification on the beneficial ownership issue regarding foreign direct investment (FDI) from neighbouring countries, said Amitabh Kant, chief executive officer of policy think-tank NITI Aayog.

“Inter-ministerial consultation is going on and you will soon have a policy regime on this,” Kant told CNBC-TV18. He also stated that the Production-Linked Incentive Scheme will be extended to more sectors very shortly.

The government’s note on April 18 asking neighbouring countries to seek prior approval from the Centre for their FDI investments in India was seen as an attempt to restrict China from taking over Indian companies at low valuations during the pandemic turmoil. This created another issue for foreign investors as the threshold of the beneficial owner had not been clarified.

“Without the clarity on the threshold, any investor with even one share held by a Chinese investor will require an added layer of approval, this is a big concern," said a private equity expert.

Reports suggest that The Department for Promotion of Industry & Internal Trade (DPIIT) has discussed a lower threshold for the added approval so that smaller investments from China can flow in easily but the government can put a check on the big investment attempts by Chinese companies or stop any hostile takeover possibilities.

Speaking to CNBC-TV18, Kant also stated that the restriction on bordering nations was to stop round-tripping. He added that the intention is not to stop investments but analyse and examine the FDI inflows.

The government is also giving a big push to attract investments under the Production Linked Incentive Scheme, said Kant.

The government has announced the PLI Scheme in active pharmaceutical ingredient (API), medical equipment, and mobile manufacturing so far and that’s likely to extend to 10 more sectors which are under consideration, Kant said.

The idea is to roll out incentives in sectors that can attract quick investments. A list of sectors with PLI Scheme will be approved by the Cabinet very shortly, Kant said adding the “aim is that PLI Scheme should give impetus to investments right from the word go".

On India banning Chinese apps, Kant said, “India has banned several Chinese apps because of data flow reasons. Data of India must reside in India was the idea behind the measure. Apps which are banned were not in consonance with India’s data policy regime.”

When asked on a likely deal by Microsoft to buy Tik Tok and will it mean a re-think on the ban, Kant said, “Cannot comment on a single app, we want every single app to be in total conformity with Indian policy.”