HDFC stake impact: Centre tweaks FDI norms with an eye on China

Days after the central bank of China increased its stake in Housing Development Finance Corporation (HDFC), the Centre on Saturday revised its Foreign Direct Investment (FDI) policy for those countries that share its border with India. As per the tweak, neighbouring nations can invest in Indian firms only after getting the Centre's approval for the same. 

According to the new policy, "an entity of a country that shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country can invest only under the government route". The new rules will also apply to 'the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly,' the Department for Promotion of Industry and Internal Trade (DPIIT) stated in its notification on Saturday. 

The revision comes at a time when the People’s Bank of China has raised its stake in HDFC from 0.8 per cent in March 2019 to 1.01 per cent as of March 2020. People’s Bank had bought 1.75 crore shares (worth about Rs 3,000 crore) of HDFC Bank between January and March. 

Soon after the news of China increasing its stake in HDFC became public, Congress leader Rahul Gandhi had urged the Centre to ensure that no foreign interests take control of any such corporate at a time when the country is fighting the COVID-19 crisis. He warned against foreign countries taking advantage of the economic slowdown that has weakened Indian corporates.