ARTICLE · 25 MAY 2020

Stricter Foreign Direct Investment From Neighbouring Countries – Future Challenges

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The Government of India has a comprehensive policy framework on foreign direct investment ("FDI") in the circular on consolidated FDI policy issued by the Department...

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Introduction

The Government of India has a comprehensive policy framework on foreign direct investment ("FDI") in the circular on consolidated FDI policy issued by the Department of Industrial Policy and Promotion ("DIPP"), Ministry of Commerce & Industry, Government of India ("FDI Policy") which permits offshore investment under the: (i) automatic route (i.e. without government approval) or (ii) government route (i.e. with prior approval) subject to sectoral conditions.

What is the change and why?

In light of the economic and financial crisis caused by the COVID-19 pandemic, the DIPP on 17 April 2020 revised the FDI Policy through Press Note 3 of 2020 ("Press Note") imposing stricter norms on foreign investments in Indian companies by investors from bordering countries. This has been incorporated into Rule 6 of the Foreign Exchange Management (Non Debt Instruments) Rules, 2019.

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