India has recently modified its Foreign Direct Investment Policy intending to prevent ‘opportunistic takeover of the companies affected by the Covid-19 outbreak. The initiative has upset China which has defined as disobeying the international trade principal. This is also anticipated to decrease the investment flow in new companies as well as collaboration and acquisition scenario in the country. According to the press note, FDI will have a significant impact on listed organizations. There are three ways how Chinese money comes in India: 100% FDI on manufacturing plants, acquiring a stake in Indian organizations and whether listed and unlisted stake in FII.
What was the amendment?
The government stated organizations in neighboring nations are looking forward to investing in Indian organizations would first require approval. A company of a nation that shares a border with India can invest in companies here only under the government route. It is also applicable to the ‘beneficial’ owner even if the investing organization is not situated in the neighboring country. It would be still subjected that the owner is a resident of that country. It was decided when China’s central bank and the People’s Bank of China had increased their shareholding in HDFC to over 1 per cent. China’s FDI has increased five-fold since 2014. Its collective investment in India has grown to $ 8 billion, far more than an investment in any other country.
What was China’s response?
China had asked India to amend the discriminatory practice and threat investment from different nations. The additional barriers established by the Indian side for investors from specific nations violates WTO principles of non-discrimination and go against the trend of liberalization. They do not acknowledge the consensus of the G20 leaders and trade ministers to discern the transparent and fair trade and investment to keep the market open.
What is India’s perspective?
India support of the FDI policy is not pointed to any one nation and the initiative’s objective is to curb the opportunistic takeover of Indian organizations. The revision is not forbidden in investments, only the approval route has been modified. Numerous sectors are based on the approval routes.
What other countries are doing?
Before India, the European Union and Australia had set up similar measures, these were evident in targeting Chinese Investment. On March 25, the European Union released a guideline to safeguard a strong European Approach, which aimed at preserving the European organizations and critical assets.
The initiative to foist additional requirement for investment for certain countries is unusual. India had to foist such measures on certain domains only. For example, FDI in pharmaceuticals had been permitted under automatic route till 2011. The government had made it necessary to take approval in the coming sectors. India has obstructed certain FDI due to bilateral standoff with China.