The Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, has released Press Note No. 3 (2020 series), reviewing the current FDI policy with the clear objective to ‘curb opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic’. The amendment is framed such that investment from all entities that are either residents or citizens of a country sharing a land border with India can come through the Government Route only.
The amendment also obstructs any citizen of Pakistan or an entity incorporated in Pakistan from investing in defence, space, atomic energy, and sectors/activities prohibited for foreign investment.
Foreign Direct Investment or FDI is an investment made by an individual or a firm into a business incorporated in a foreign country. It is identified as when an investor establishes business operations or acquires assets in a foreign business. In India, FDI is allowed in sectors under two routes - Automatic route, where the foreign entity does not have to seek permission from the Government of India to invest in Indian businesses, and Government route, where approval from the Government is essential to make the investment.
Investors from Pakistan and Bangladesh were already liable to seek Government approval for investment in the country prior to the amendment, and neighbouring countries other than China, namely Myanmar, Bhutan, Nepal and Sri Lanka are not a major investors in India. Therefore, it is safe to assume that the decision taken by GOI is aimed at investors from China.
Additionally, the policy decision was taken by the Government of India after the People’s Bank of China raised their stake in HDFC, the largest housing mortgage provider in India, to 1.01 percent, and it is likely that the decision was taken by the Government of India to counter the possibility of China buying undervalued shares of companies listed on the Indian Stock exchange.
In the wake of the economic slowdown due to the pandemic, China is taking proactive steps to strengthen its hold on the economies where firms are susceptible to hostile takeovers due to losses incurred due to the pandemic.
Spokesperson from the Chinese Embassy, Ji Rong, has cited that China’s accumulated investment in Indian economy is over 8 billion USD in multiple sectors ranging from infrastructure, electronics, and automobile, and is key for the development of Indian Industries.
The embassy has also included in their statement that the revision in the FDI policy is clearly discriminatory to Chinese investors, especially in time where governments of various countries should band together to ensure resumption of economic activity in economies negatively impacted by spread of coronavirus.
China has accused India of not adhering “to the consensus of G20 leaders and trade ministers to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open”.
The real question is - Is it really fair and transparent when a country seizes an opportunity to increase its presence in a foreign country when the whole world is fighting against a deadly virus which has already infected more than 28 lakh people, and claimed the lives of almost 2 lakh people worldwide?
The Indian Foreign Ministry has not addressed these allegations so far but the policy decision taken by India is similar to policies implemented by Australia, Japan, and United States of America, as well as some countries in Europe to avoid opportunistic takeovers and acquisition in such a time for their economy.
FDI equity inflows in India stood at $36.79 billion during April-December 2019.
Highest Equity FDI inflow was recorded in Service Sector at US$ 6.52 billion, followed by Computer Software and Hardware sector at US$ 6.34 billion at second, and Telecom sector at $4.29 billion at third.
Country wise, during FY20, maximum equity FDI inflow was noted from Singapore ($11.65 billion), followed by Mauritius ($7.45 billion), Netherlands ($3.53 billion), Japan ($2.80 billion), and USA ($2.79 billion).