Finance Ministry Changes FDA Policy Under FEMA

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Notifying changes in the FDI rules, the Finance Ministry has made it mandatory, for foreign investments from the border countries to get prior approval from the government. The objective of this move is to prevent takeover of domestic firms amid COVID-19 pandemic. These border countries are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan.

A press note to this effect was issued by the Department for Promotion of Industry and Internal Trade (DPIIT).

China has termed this move of Indian government as a violation of the World Trade Organisation’s (WTO) principle, and against the general trend of free trade.

Indian experts, however, have defended the government move and said that the World Trade Organisation’s rules do not cover foreign investments.

FDI is permitted via automatic route in most of the sectors, barring defence, telecom, media, pharmaceuticals, and insurance, where the foreign investors require government approval. Through automatic approval route, the investor just has to inform the RBI after making the investment.

The government route, however, require the foreign investor to take prior approval of respective ministry/ department.

There are nine sectors where FDI is prohibited – lottery, gambling and betting, chit funds, Nidhi company, real estate, and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco.