Government proposes restrictions on foreign investment in pension funds

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As India-China tensions simmer, the finance ministry has proposed limitations on foreign investment in pension funds while explicitly suggesting additional checks on Chinese investment.

The Draft Pension Fund (Foreign Investment) Rules, 2020, stated that government approval will be required for investments from bordering countries “including China”, on Friday.

Foreign investment in pension funds is governed by the Pension Fund Regulatory and Development Authority and is capped at 49% via the automatic route.

The latest proposal is in continuation of earlier restrictions placed by the government on foreign direct investment in companies, targeted at China. However, the earlier notification did not explicitly mention China.

The move comes amid heightened tensions between the Indian and Chinese armies at the Galwan Valley and other points in Ladakh.

According to experts the latest proposal is aimed at preventing hostile investments in a sensitive and socially important financial instrument.

Unlike in Europe or the US, there is no state-sponsored social security in India. Indian pension funds are privately funded and represent a large portion of the social safety net post-retirement for many Indians.

“Pension funds play a vital role in Indian social security framework and therefore such restrictions by the government to regulate foreign investment in such crucial sectors seems to be in long term security of the country,” said Shailesh Kumar, partner at Nangia & Co LLP.

ET had earlier reported that the government plans to put up more comprehensive restrictions to curb its reliance on Chinese funds and products.

From tariff and non-tariff barriers on imports to curbs on investment in infrastructure projects, the government is considering all its options to limit China’s presence in the economy.

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Tagged China, Draft Pension Fund (Foreign Investment) Rules, foreign investment, Galwan, pension funds

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