The Modi government is incessantly taking determined steps to wage an economic hell on China after the latter’s backstabbing, which resulted in the deadly clash at the Galwan Valley on June 15. After the tweak in FDI rules, which prevents Chinese companies from indulging in hostile takeovers and systematically taking over Indian companies, the Central government has made Indian coal mining out of bounds for Chinese firms.
Earlier in June, the Modi government opened up its coal mines for the world, as Prime Minister Modi launched the auction process of coal blocks for commercial mining. The Central government has now issued a fresh set of guidelines which states that Foreign Direct Investment in commercial coal mining from any country sharing a land border with India will be allowed only after government’s approval, which all but spells doom for Chinese companies looking to enter India’s coal industry.
Expectedly, the Modi government didn’t name China specifically; although it is quite evident that against whom the guidelines are aimed at. Chinese mining firms, China Shenhua Energy and China Coal Energy are one of the biggest coal firms in the world and will likely be barred from bidding in the coal auctions, even though 100% FDI is permitted in coal mining under the automatic route.
Launching of the auction process of coal blocks for commercial mining is significant, as now private players will be allowed to extract coal without any restrictions on the end use of fossil fuel. Chinese companies will require a government clearance before participating in the auctions, and it is unlikely that the Central government will allow them to participate, especially in the current backdrop of escalations at the border.
In the first phase of the auctions, 41 mines with a total geological coal reserve of 17 billion tonnes are on offer. These 41 mines are expected to cumulatively earn the revenue of around Rs 20, 000 crore to the respective states.
Interestingly, India won’t face any losses in the absence of Chinese companies, as the auctions have resulted in a lot of queries from Indian and Global firms, largely because the mines which are supposed to be auctioned are fully explored ones and hence, can be brought to production in no time.
Earlier in April, the Modi government had altered its FDI policy; as per a press note by the Department for Promotion of Industry and Internal Trade (FDI Policy Section), India’s FDI policy now stands altered. The alteration itself seems to be aimed directly at avoiding predatory financial investments specifically from Beijing targeting debilitated corporates.
The pre-revised position only restricted Bangladeshi and Pakistani entities/ citizens into investing only under the Government route. But now, the restriction has been broadened and according to the Revised Position, “an entity of a country, which shares a land border with India, or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route.”
This more or less concerns China, for, among all countries with whom India shares land borders, only Chinese FDI can be a matter of concern and therefore, this is one of the most direct measures that India has taken against Beijing ever since the Coronavirus Pandemic broke out; forcing a lockdown within India.
The revised FDI policy safeguards Indian companies from not only the Chinese State institutions, like its Central Bank, but also from the Chinese conglomerates like Alibaba and telecom major Huawei, who might have tried to make inroads into India at a time when domestic companies could be facing trouble due to a slowdown in economic activity.
Not just Chinese FDI, India has also blocked China from investing in Indian markets. Also, the Modi government has planned to keep a tab on Chinese Foreign Portfolio Investment (FPI) as well.
The FPI investors are different from FDI in the sense that the former involves acquiring smaller shares and churning their investment, whereas the latter is a more long-term and stable source of funding.
New Delhi doesn’t want to offer unbridled access to the Indian markets by Chinese portfolio investors who might be looking at using FPI for hostile takeovers in India, given that the direct investment route already stands blocked.
The Department of Economic Affairs in the Union Ministry of Finance is contemplating options including the decision of mandating the “approval route” for Chinese FPI as well. The Modi government will also rope in the stock market watchdog- Securities and Exchange Board of India (SEBI) in the consultation process.
The Modi government is tightening the screws on China as it aims to send a clear cut signal to China: you can’t mess with India and get away scot-free.