Discussions on legal amendments to stipulate tighter regulations, which were notified via a press note in April, had begun before the tension at the Line of Actual Control (LAC) escalated with the finance ministry, department for promotion of industry and internal trade, ministry of corporate affairs (MCA), among others engaged in the deliberations.
“A final decision is yet to be taken but the idea is to ensure that the guidelines cannot be easily diluted,” a source told TOI.
In April, the government had amended the FDI rules to impose a blanket ban on investments through the automatic route by entities from countries that share a border with India – a move that was aimed at restricting investments from China to prevent a takeover of Indian companies amid low valuations.
Separately, the government is also seeking to put in place a repository on FDI into the country to access details of investments across sectors and geographies along with the source of these flows.
While data is currently available with the RBI and the MCA, it is tough to lift the corporate veil easily. So, the stipulations on significant beneficial ownership – which is expected to be linked with the Companies Act threshold of 10% — will not just help track the original source of investment but the database will also enable the government to quickly step in to put checks in case any surge is notice.
Officially, during the last 20 years, FDI from China added up to $2.3 billion but a lot of the equity flows were routed via third countries such as Singapore and Hong Kong. With the significant beneficial ownership stipulation, it will be easier to track the flows.
“Currently, we do not know how much investment is there in our start-ups or in the pharma sector from one country. The database will help us track it better,” said a government source.
Tracking Chinese and other sensitive investments was part of issues flagged by the security agencies a few months ago, which had also suggested region and sector-specific checks. But the proposal was on the backburner. Sources said that for the moment, the home ministry’s guidelines on certain sectors such as atomic energy and on investments near the international borders is being followed.