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Government unlikely to adopt open door policy for Chinese investment

picture credits- the week

It is too incongruous to assume that the government will adopt a positive, lenient stance towards the Chinese authorities. The Centre is quite unlikely to adopt an open-door policy for Chinese investments anytime soon.

However, it is worthy of notice that the government is reportedly considering opening the door to foreign direct investment (FDI) to a limited extent. The government will open foreign direct investment in select sectors where local manufacturing units don’t have the adequate capacity or in sectors that are extremely crucial for India’s interests.

Earlier, contradictory reports surfaced that the government was planning to start the process to approve FDI proposals from Beijing on a “case-by-case” basis. This would have meant lifting restrictions that were placed to prevent opportunistic takeovers or acquisitions of Indian companies by avaricious Chinese enterprises because of the pandemic.

To revive the economy and to invite investment in the key sectors, Indian administration is looking for alternative proposals to invite investments in core sectors, to be undertaken under strict government scrutiny. A person familiar with the matter stated, “Any proposal entailing large investment would have to be in a critical area where there is minimal or negligible local presence”.

picture credits- the hindu

It is worth mentioning here that the Indian authorities will give high priority to security clearances. It has been mandated that the security clearance would continue to be compulsory in all cases, and as a part of a standard operating guideline all investment proposals from Beijing will be examined by the concerned ministry.

Additionally, it has been reported that the proposals will get clearance from those entities or investors that are based elsewhere but are sending funds via Hong Kong and those that entail small investments by Chinese investors.

It has also been reported that the authorities are considering putting a limit on Chinese investment, below which prior approval for sectors that are on the automatic approval route would be waived. However, no final decision has been taken on setting such a cap, but such caps can prove beneficial for incapacitating Chinese aggressive investment spree in the region.

In April, order effectively curtailing Chinese opportunistic investment spree in India was brought into effect by the Department for the Promotion of Industry and Internal Trade (DPIIT). The ministry had issued guidelines mentioning that foreign investments from countries that share a border with India will have to undergo rigorous process of approval and will require Indian government authorization.

The rules that had been changed in April had hit Chinese entities as they had emerged as a big source of flows in recent years, especially in the digital and technology sectors. Since April, the Centre had received over 120 FDI proposals worth about Rs 12,000 crore from China.

picture credits- the hindu

Such tenacious and restrictive stance was adopted by the Indian authorities as tensions had brewed between India and China along the border area, with reports of clashes at the line of actual control.

The disengagement process that was started last month had raised hopes of the “territorial aggressor” of easing restrictions on Chinese FDI and quicker approval. That’s unlikely, as per people familiar with the matter, have stated.