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The Financial Express

‘Indian curb on Chinese investment will harm own economic dev’

| Updated: April 26, 2020 11:03:31


Migrant labourers walk to their villages during the lockdown in New Delhi, India, on March 29. Photo: Xinhua    Migrant labourers walk to their villages during the lockdown in New Delhi, India, on March 29. Photo: Xinhua  

India's move to amend its foreign direct investment (FDI) rules, which is widely seen as targeting China, will weigh on the confidence and expansion of Chinese investors, who have been playing an active role in the Indian market from smartphone manufacturing and e-commerce to the fintech sector.

The protectionist move will only harm India's economic development in the long run, experts said, calling for the country to separate security issues from normal economic cooperation.

The new decision plus the economic crisis in India brought about by the COVID-19 pandemic are adding uncertainty to the investment outlook, several Chinese investors told the Global Times on Monday.

The Chinese Embassy in India said in a statement on Monday that the impact of the policy on Chinese investors is clear. The additional barriers set by the Indian side for investors from specific countries violate the WTO's principle of non-discrimination, and they go against the general trend of liberalisation and facilitation of trade and investment.

More importantly, they do not conform to the consensus of G20 leaders and trade ministers to realise a free, fair, non-discriminatory, transparent, predictable, and stable trade and investment environment.

"We hope India would revise its relevant discriminatory practices, treat investments from different countries equally, and foster an open, fair and equitable business environment," read the statement.

The statement followed a notice on Friday by India's Department for Promotion of Industry and Internal Trade (DPIIT), saying the Indian government has reviewed the existing FDI policy for curbing opportunistic takeovers and acquisitions of Indian companies due to the COVID-19 pandemic by putting a blanket ban on investment via the automatic route by entities from countries that share a border with India.

Under the new rule, investments require government approval instead of the previous automatic route. Most FDI flows into India occur under the automatic route, meaning companies only need to inform authorities afterward.

The decision will take effect from the date of Foreign Exchange Management Act notification, according to the DPIIT. No notification had been posted on the website of India's central bank as of press time.

Even though the new policy does not mention China, it is widely seen as a move to fend off Chinese firms' investment in the South Asian country as similar restrictions are already in place for Bangladesh and Pakistan.

India is under a national lockdown until May 3 to contain the spread of the coronavirus. The country has 17,615 confirmed cases and 559 deaths, according to a tally by US-based Johns Hopkins University. Chinese enterprises have actively made donations to help India fight the epidemic.

The amended FDI rule plus the epidemic's impact on the economy have cast more uncertainty on Chinese investment in India, Scott Wang, head of a China-invested fintech firm based in Delhi, told the Global Times on Monday.

Founded last year in India with registered capital of about 10 million yuan ($1.41 million), the firm will find it hard to add more overseas capital under the new FDI rule as it needs government approval, and "we do not know how long it will take," said Wang.

"If the new rule is in effect for a short period like half a year or even a year, I think the industry will rebound and embrace quick development afterward, but if it is a long-term situation, it will generate a huge impact," he added.

Wang's firm has more than 100 Indian staff and was planning to hire up to 300-400 more local people by end of April, but the plan was delayed amid the epidemic.

Another Chinese investor surnamed Li, who has been engaged in the exhibition sector in India for four years, told the Global Times on Monday that he will take a wait-and-see stance regarding further investment, which was in the works before the announcement of the new FDI rule.

"The intention of the new rule is to contain investment from China with growing sentiment in India showing dissatisfaction and rising complaints amid the economic difficulties caused by the epidemic," Li said, adding that the Indian government's move is more like addressing its own issues by diverting the focus to other countries, like China.

Jason Wang Chao, a business veteran in India, said that the "this means you" new policy will definitely dent the enthusiasm and confidence of Chinese investors.

"This was the most discussed topic in the past weekend for friends in my circle, and we in general see this in a negative light," Jason Wang, who has been dealing with China-India cross-border business for the past decade, told the Global Times.

He noted that the announcement is only the beginning, with further details to be revealed to the public at a later date. Details such as the actual industry catalogue, investment targets to be screened, and restrictions on green field investment have yet to be disclosed.

"I hope the corporate sectors of both countries could approach issues from a practical perspective, foster mutual trust and emerge from the current low caused by the COVID-19 pandemic," Jason Wang said.

Long Xingchun, a director of the centre for Indian Studies at China West Normal University, told the Global Times that India should not mix the so-called national security issue with economic cooperation as the two countries enjoy structural complementarity.

As of December 2019, China's cumulative investment in India exceeded $8 billion, far more than the total investments of India's other border-sharing countries, data from the Chinese Embassy in India showed.

Sha Jun, executive partner at the India Investment Services centre of Yingke Law Firm, told the Global Times that Chinese investment in India has been rising since the second half of 2017 and Chinese capital has obviously bolstered the Indian market thanks to the integration of Chinese enterprises' "going global" with the "Make in India" initiative.

"At first glance, the protectionist policy will be a short-term one, during which time investment projects will find it more difficult to be put into operation due to stricter government screening," said Sha.

If the policy becomes a long-term one, it will not only impair enthusiasm of Chinese investors but also threaten the development of India's local industries given the absence of vibrant foreign capital inflows, he added.  

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