India is a country that does not have a lot of free-flowing money. FDI has been a major source of development, always. Indian foreign direct investment policy allows the foreign nations to invest in India under the automatic route and up to the threshold limit set by the sector. This led to favorable market conditions and sometimes unfavorable ones. 100% FDI is allowed by the automatic route in the manufacturing sector, greenfield airports, construction, and many more sectors. In the rest sectors, FDI is available with threshold limits of about 26% or 49%.
Looking at the current situation, India has mended this policy so that people from other nations don’t get an upper hand while India is extremely vulnerable. The countries which share land border with India will be allowed to invest only on approval basis. This is done so that the level of investment and the type of investment is checked thoroughly. The nations who come under this new rule are: China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan and Afghanistan. This is done not just for the new investments, but for the old ones too. It is safe to say that China is the only country at the moment who has come out of this pandemic and is on its own feet. So, this rule was majorly passed with consideration of the Chinese investors so that they don’t just barge into the economy and take undue advantage if a situation like this. The Chinese have also responded to this new rule in complete disdain. The amount of Chinese investment in India is for about $8 billion which is far more than the investment made by other border nations. So, the impact of this rule on the Chinese investors is clear. This has been said by the Chinese spokesperson from their embassy. And this major step was taken when the Chinese investing company, Peoples Bank of China increased its stake from 0.8% to 1.01% in HDFC.
But to be very practical, these rules aren’t as strict as they are laid out to be.
- The Indian government promises a lot but are they always fulfilled? The major loophole is that Chinese companies can invest in India by investing in a company overseas and that company will in turn invest in India. When a company is registered, names of the board of directors are always given forward for any transaction. If a Chinese company employees US board of directors and gives them a handsome amount of salary for the regulations, the company will flourish in the states. After that, this company will invest in India and the transaction will go unnoticed. In the example cited above, the country USA can be changed to any other country and US is just taken as an example. Now the government says that they will keep a check on them but how much can they even check? We were promised that the nation s in safe hands, but where are we now? The point here is that empty promises are made to us, always but if we give it a thought, it is nearly impossible in the practical scenario. Moreover, the government hasn’t banned the investments, they are just scrutinizing them and thinking about them. The hoax about promoting national interests isn’t that feasible in reality.
- The whole concept of FDI has been explained and has been listed own by the government. But there have been no strict rules about the FPI (The Foreign Portfolio Investment). FPI has less than 10% stake of the foreign investors. Basically, when the foreign direct investment is of less than 10%, it is called a FPI. So, Chinese investors or any neighbouring countries can still go for the FPI option. Even if there exists a rule for the same, how much can the government really look into? Out of the 30 unicorns in India, 18 of them have major Chinese stakeholders, how will the economic ecosystem suddenly change so much by a rule when there has been no prior work on that?
- There is about $12 billion Chinese investment in India including from all forms of business. There have been cases when there are multiple Chinese companies fighting about the Indian stake because they find the Indian economy beneficial, always. There have been strategic and financial modeling in this sphere. With the new law, the number of applications that the Indian government will receive from the future shareholders will be huge. When India has been a hub for foreign investors ever since the 1991 liberalization policies, how can they suddenly end? And how can India as a nation reject all these proposals when the state of the Indian economy is extremely poor and it is already on a slowdown? No matter how many rules are passed, we must come to terms with the fact that Indian government cannot sustain itself on its own right now, and if they move away from the FDI, there will be extreme consequences.
- For a very long time, the Indian start-up sector has been crowded by the US investors and the Chinese investors. There has always been a war between the two for tapping the Indian companies. More than 75 Indian companies have a concentration of Chinese shareholders in their shares. These range from e-commerce, media etc. and we all know that the USA has been majorly hit by the virus and the US economy will not be the ultimate worlds best economy after this virus. The only option left will be for India to go forward with the Chinese investors. And if India decides to not go ahead with them, our own country will be in cross fire. Passing these rules is alright but the practical implementation of these rules isn’t that appealing. All the Chinese investments in India have always been beneficial for our own growth like TikTok and Xiaomi has been one of the most successful projects. They have generated employment and have taken the Indian economy forward. In a situation like now when Indians are dying of hunger, how can the FDI policies be changed and the FDI be ignored? The rules are made and publicized but how many promises are done to us which go unfulfilled is the major question here.
Every house needs a cease-fire which must be kept in it for unforeseen circumstances. If the cease-fire is bought after the fire ignites, it doesn’t solve any purpose. Similarly, the rules were to be strengthened before the pandemic so that the government could be on its own and strengthen itself. Blatant policies now will only take us down and not up when they have loopholes and can be jumped over.