Modi government mulls stricter foreign ownership rules for companies
What's the story
The Indian government is gearing up to tighten rules on foreign ownership of companies, as per Reuters. The move could have a major impact on businesses across sectors ranging from e-commerce to pharmaceuticals. The talks regarding the changes are in the final stages, and the Finance Ministry and Reserve Bank of India (RBI) are yet to comment on the norms.
Plan
Loopholes in foreign investment laws to be plugged
India is currently revising its foreign investment laws to simplify them and address any loopholes. As part of this, a new category of "foreign-owned and controlled entities" (FOCE) will be introduced. This will also include Indian firms with "indirect foreign investment." The proposed changes suggest what cannot be done directly shouldn't be allowed indirectly, a principle that will now be clearly reflected in the rules.
Application
FOCE and its implications
An FOCE will be defined as an Indian company or investment fund controlled by people living outside India. This new classification will not just include indirect ownership but also directly owned foreign firms. The proposed changes indicate that any transfer of indirect shareholding will have to be reported and comply with sectoral foreign investment caps. These transactions will also have to comply with rules stating they should be conducted at fair market value.
Prevention
New norms to prevent circumvention of FDI policy
The proposed changes in the rules seeks to ensure that foreign investors cannot bypass the intent of India's Foreign Direct Investment (FDI) policy. The RBI is reportedly on board with these changes. Since 2020, India has made prior government approval mandatory for investments from nations sharing its land borders, including China after clashes between the two neighbors at the Himalayan border.