As tensions along the LAC between India and China continue to escalate, there is a widespread anti-China sentiment across the country with widespread calls for the boycott of Chinese products. India has also tightened its FDI norms to prevent any Chinese hostile takeovers of Indian companies amidst the coronavirus pandemic. Minister of State (MoS) for Finance Anurag Singh Thakur informed the Lok Sabha that in FY 2020, Chinese FDI inflow has declined to $163.77 million.
Since the last three years, Foreign Direct Investment (FDI) from China has been steadily decreasing with FDI dropping to $163.77 million in 2019-20. In 2017-18, Chinese FDI was $350.22 million which saw a sharp drop in the following year to $229 million.
Talking about the outflow from India, Anurag Thakur said, it was $20.63 million in the calendar year 2020 as against $27.57 million in the corresponding period last year.
Thakur said, “A non-resident entity can invest in India, subject to the FDI policy except in those sectors/activities which are prohibited.”
“However, 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,” he said quoting the Press Note 3.
Earlier this year, the Modi government had altered its FDI policy, and as per a Department for Promotion of Industry and Internal Trade (FDI Policy Section) press note, 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 the most direct of measures that India has taken against Beijing ever since the Wuhan coronavirus pandemic broke out.
The restriction itself is quite broad in ambit, and goes on to include not only State institutions like the People’s Bank of China but all major stakeholders and applies to:
- The country itself (China being the top concern)
- Beneficial owners of investment into India
- Citizen of any such country
Thus, 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.
The fact that Chinese FDI was already readily declining even before the tweak in FDI norms, raises the possibility of Chinese companies and investments being kicked out from every sector of India, ultimately resulting in no FDI from China.