India Amends FDI Rules To Safeguard National Interests

India Amends FDI Rules To Safeguard National Interests


India Amends FDI Rules To Safeguard National Interests

India has a huge retail market along with specialty chemicals, electric mobility and pharmaceuticals. They all are believed to be of particular interest to Chinese investors. So without naming anyone India has decided to throw a financial safety net around its financial market.

Therefore on Saturday last India took a decision to amend FDI rules. Now onwards government approval will be required for entities from all countries that share a border with us. On paper these countries are China, Pakistan, Afghanistan ( yes with UT of Ladhak but areas are under illegal occupation of Pakistan ), Nepal, Bangladesh, Bhutan, Myanmar and Sri Lanka ( sea boundary ).

However the rule is meant for China specifically as the beggared Pakistan has no appetite for any financial misadventures. The new rules will protect any vulnerable assets from predatory acquisitions. India has also drawn a careful line between economic openness and national security because the Next Virus attack through the “Economic Corridor “ can be more deadlier.

Warning regarding predatory Chinese investments and control have been coming from time to time, but it took the Wuhan Virus for the government to address the strategic, and economic vulnerability.

The Fire alarm was sounded with the Public Bank of China’s acquisition of 1% of HDFC – as foreign portfolio investment – on behalf of the country’s sovereign wealth fund SAFE.

Australia, Germany, France, Spain and even UK have already acted to screen their investments. A report by Gateway House, a think tank, raised red flags recently in a report that said Indian tech, retail and fintech start-ups have got close to $ 4 billion from Chinese investors since 2015.

The concern, however, is even greater with regard to national security as it has been have pointed by some experts regarding threat of data being siphoned off, opaque tech and blurry financial holdings.

The permission given to Chinese giant Huawei to take part in India’s 5G trials was only after careful analysis. The possibility of security vulnerabilities has moved up the graph as far as the government is concerned and this led to a barrier against Chinese FDI.

The Gateway report warns, “Unable to persuade India to sign on to its Belt and Road Initiative, China has entered the Indian market through venture investments in start-ups and penetrated the online ecosystem with its popular smartphones and their applications.”

In March, reports said the Industrial and Commercial Bank of China and China Investment Corporation were scouting for investment opportunities in the financial services sector in India on behalf of Chinese investment funds. Earlier this week, government asked for actual identities of beneficial owners of funds, particularly from China.

The government believes the Indian economy could stay vulnerable for a while as it recovers from the double whammy of a slowdown and the Wuhan Virus. However the crisis has brought home to India and other countries that national security covers not only defence but even economic and commercial policies and activities. They all will now be seen through a national security filter.

In fact, the Wuhan Virus has drawn attention to India’s somewhat dependence on China as the government tries to source equipment and components. India’s pharma sector has become heavily dependent on pharma ingredients from China.

Even HCQ, of which India is the world’s largest manufacturer, needs KSM (key starter materials) to be imported from China. It was only after India received a huge amount of this that production actually took off, allowing India to practise its medical diplomacy.

Around the world, similar fears are prompting governments to tighten investment norms. Australian treasurer Josh Frydenberg said the government would crack down on Chinese state-owned businesses going after Aussie assets and declared there would be a zero dollar approval threshold for all proposed foreign investments of Australian businesses.

In early April, the British government prevented a Chinese fund from taking over a key chip manufacturer. Reports have suggested that China is eyeing sectors, start-ups and small niche tech companies that will synergize with its bid to become a full-spectrum tech giant by 2025, a program called Made in China 2025.