Know the real reason why India took such a big decision amid the Coronavirus crisis
India recently revised the FDI (Foreign Direct Investment) policy with the objective of preventing “opportunistic takeovers” of firms hit by lockdown induced by the coronavirus global pandemic. The revised FDI has upset China saying that it is a violation of international trade principles. Let’s understand what is the new change in the FDI rules and why China is upset about it.
What is the change in FDI policy?
The government announced on Saturday that firms in neighbouring countries who want to invest in Indian companies and buy more than 10 per cent share would first need the approval from the government. This rule applies for the beneficial owners also, even if the company is not located in a neighbouring country, it would later depend if the owner of the company is a citizen or resident of such a company.
While the officials didn’t say, but the experts believe that amendments are aimed at possible Chinese investments. The Indian government made these changes a few days after China’s Central Bank, People’s Bank of China raised its shareholding in HDFC to more than 1 per cent. Earlier, People’s Bank of China had 0.80 shares in the company which they increased by 0.21 per cent.
China’s FDI has grown more than five times since 2014 and till December 2018, its cumulative investment in India exceeded $8 billion. It is a lot more than what other neighbouring countries have invested in India so far. A Brookings India paper estimates the total planned and current Chinese investment in India at over $26 billion.
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How China has responded to the development?
China has asked India to revise the discriminatory practices and treat investments from various countries equally. Ji Rong, a spokesperson for the Chinese Embassy in India has said that the additional barriers set by India for neighbouring countries violate the World Trade Organization’s principles of non-discrimination. It also go against the general trend of facilitation and liberalization of investment and trade. He also said that the new amendment does not conform to the consensus of G20 leaders and trade ministers to realize a non-discriminatory, free, fair, predictable, transparent and stable trade and investment environment.
India maintains its stance and says that the change in FDI rule doesn’t aim at any one country but it is aimed at curbing “opportunistic” takeovers of Indian firms. Many of Indian firms are under strain due to the coronavirus lockdown.
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