Economy

Press Note aimed at, geared toward curb predatory takeovers by foreign entities, aimed toward be reviewed in the current economic situation.

What is FDI?

·       Foreign direct investment (FDI) is when a company takes controlling ownership in a business entity in another country.

·       With FDI, foreign companies are directly involved with every day operations in the different country.

·       This suggests they aren’t just transferral bringing with them, but also knowledge, skills and technology.

What is Press Note 3?

·       Press-note 3 requires that all investments from entities, which are based in a land bordering country, or when the beneficial owner of the investment is based in a land-bordering country (both referred as “restricted entities”), will have to be compelled to be made under the ‘approval route’ and will need security-clearance.

Why it was introduced?

·       It was brought throughout the initial days of the pandemic in April 2020 – and as an immediate reaction to the issues of Indian companies being vulnerable to opportunistic takeovers throughout the pandemic.

·       Therefore, they obligatory restrictions on foreign investments which could be ‘predatory’ in nature and to ensure that assets in sensitive sectors dont end up in foreign hands, jeopardising national security.

Why need to rationalize now?

·       India’s vaccination drive gathered steam and reasonable control over Covid cases was established, the economy improved as well during this period, the government also introduced several bold reform measures like opening up of travel and tourism, scrapping the controversial retrospective tax imposed in 2012 on transfer of Indian assets and infusing a new life into the earlier moribund telecom sector.

·       Therefore, the present healthy trends may potentially ward off any attempts of ‘opportunistic takeovers’ as feared earlier.

·       There is ought to review PN3 to boost legitimate investments, particularly from sources like ‘pooled funds’ Investments from restricted entities constituting but 10 per cent (or even five per cent) of the economic interests of an Indian company, in non-strategic sectors, regardless of investment route, may be exempted from the prior approval demand.

·       Additional investments into Indian firms where restricted entities are existing shareholders: its well known that a number of start-up sectors (e-commerce, technology, social media, etc) in India have substantial amounts of Chinese investments.

·       Need for bigger transparency and expediency within the approval process: Another challenge within the context of PN3 has been the time taken for security clearance of the proposals.

·       While the security risk posed by Chinese entities persists, there an urgent need for Indian entities to raise funds, particularly in the current geopolitical situation and more so in strategic sectors.