India amends FDI policy to block Chinese takeover of Indian corporates


Days after a Chinese bank picked up shares of HDFC, India’s second-largest private bank, at rock bottom rates, the government of India has imposed blanket ban on investments through the automatic route by entities from countries that share border with India.

The key change, which experts feel will have geopolitical and economic ramifications, was effected through an amendment in the country’s foreign direct investment (FDI) policy. The purchase of 1.75 crore shares of HDFC by the People’s Bank of China (PBoC) was seen as part of a well-planned move by China to take over companies, whose valuation have been hit by the coronavirus pandemic.  

Former Congress president Rahul Gandhi, who had alerted the government against the move, thanked the government for “taking immediate action. The Congress leader had warned that many Indian corporates weakened by the economic slowdown were vulnerable for takeovers.

Under the revised norm, curbs on Bangladesh and Pakistan have been expanded to include all neighbours who share land border with India. Besides India, several other countries have also tightened the FDI norms to keep out China, which is flush with foreign exchange reserves of over $3 trillion.

Germany, Italy and Australia are among the countries that are changing their FDI laws to safeguard their industries which are tottering under the impact of the Covid pandemic and are ripe takeover targets.

The People’s Bank of China bought 1.75 crore shares or 1.01 per cent of HDFC’s shareholding during January-March. The matter came to light after the HDFC submitted the information to regulators. From 2,500 per share, Covid impact led to HDFC shares losing 30 per cent of value.

Image Credit: Moneycontrol

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