Foreign Direct Investment (FDI) is one of the greatest instruments of wealth creation in a country. It provides enough funding for the expansion of the market and brings the technology of the world to the investing destinations. Understanding the recurring effect of investment, the Mod government has brought a lot of policy reforms to ease investments in India. Taking the benefit of favorable policies, Chinese companies have mushroomed in the Indian market with its product. This has not only started to pose a threat to domestic companies but has also raised cases of financial fraud. Realizing the threat, India has now become vigilant to Chinese investments.
Great Wall Motors to exit India
Recently, Great Wall Motors (GWM), China’s fourth-largest car maker company, decided to lay off its plan to invest $1 billion in India after failing to obtain regulatory approvals even after two years. Reports suggest the company has also laid off a dozen of its employees with the payment of three months of salary & six months of variable pay.
The decision has been taken in light of the fact that earlier in 2017, when American car maker company, General Motors (GM), had stopped its business in India, they had struck a deal to sell its Talegaon plant in Pune to GWM. But even after two years, GWM was not able to buy the plant and the final date of buyout expired on June 30, 2022.
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Indian reservations with Chinese companies
In recent times, the government has become reluctant and at the same time vigilant to Chinese investments. Its predatory and opaque structure of working has often resulted in disrupting the local businesses in India. Moreover, the relation of companies to the Chinese government has also raised security concerns in India.
Owing to tax evasion instances and financial frauds, the government has increased its surveillance of Chinese companies operating in India. In April, the Enforcement Directorate also seized about Rs 5500 cores of assets of Xiaomi Technology India in violation of the Foreign Exchange Management Act (FEMA), 1999. Further in June, the Central government also charged about 400 Chartered Accountants (CAs) and Company Secretaries (CSs) for their role in helping Chinese companies to create shell firms in India.
Since the Galwan Clash, the government has been cautious of Chinese investments and has tightened its grip on their functioning in India. Further, a series of measures have been taken to regulate Chinese investments.
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In April 2020, changing its FDI policy, the government announced that every country that shares a land border with India has to take mandatory permission from regulators to invest in the country. Further, in May 2022, the same regulations were announced for securities investments.
In June 2022, the Ministry of Corporate Affairs announced that if an individual from a country sharing a land border intends to become a director or shareholder in an Indian company then he has to take security clearance from the corporate ministry.
The government’s strict vigilance to Chinese investment has come after reports of its financial fraud and predatory business policies. Further, increasing cases of espionage from China have also made security agencies cautious of Chinese investments and they have increased surveillance on these companies.
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