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Behind new shield for Indian firms from China, a worrying trend and Ajit Doval – india news

Behind new shield for Indian firms from China, a worrying trend and Ajit Doval – india news

The government’s decision to insist on regulatory oversight of Chinese foreign direct investment (FDI) is an attempt to ring-fence India’s capital hungry startup and tech trailblazers being swallowed up by cash rich investors from the dragon country, many of which may enjoy tacit state support.

Over the weekend (April 18), the department of promotion of industry and internal trade (DPIIT) tweaked rules, making FDI by any entity of a country, which shares land border with India” subject to government approval.

The move may impact investments from countries such as Nepal, Bangladesh, Pakistan, Sri Lanka, Myanmar, and Bhutan and more importantly China.

Not surprisingly, Beijing is the only country to have responded to the Indian decision, describing it discriminatory. Ji Rong, the spokesperson for the Chinese embassy asked India to “revise discriminatory practices” and “treat investments from different countries equally”.

Until now, a non-resident entity or a foreign investor could invest in India, subject to FDI rules, except in sectors/activities which are prohibited. However, countries such as Bangladesh and Pakistan could invest only after government approvals and only in select sectors.

But the Covid-19 crisis has dramatically transformed the business landscape across the world, with many Indian startups and tech companies seeing their valuations slump.

This raised concerns about companies selling off stake at a discount as they scramble to stay afloat in an uncertain economic environment.

The influence of Chinese investment in India’s startups have been growing. The statistics are telling.

According to a recent study by Gateway House: Indian Council on Global Relations, a foreign policy think-tank, 18 of the 30 Indian unicorns (companies valued at more than $1 billion) have a Chinese investor.

“This means that China is embedded in Indian society, the economy, and the technology ecosystem that influences it,” the report said. “Unlike a port or a railway line, these are invisible assets in small sizes – rarely over $100 million – and made by the private sector, which doesn’t cause immediate alarm”.

Gateway House has identified over 75 companies, with Chinese investors concentrated in e-commerce, fintech, media/social media, aggregation services and logistics. A majority – more than half – of India’s 30 Indian unicorns (start-ups with valuation of over $1 billion) have a Chinese investor.

These include storied names such as PayTM, Oyo, BigBasket, Ola, PolicyBazaar and Delhivery among others.

National Security Advisor Ajit Doval has been flagging concerns over Chinese dominance in India’s booming tech space over the last few years, particularly pointing out worrying possibilities of Beijing’s state-funded apparatus controlling startups here through opaque corporate structures.

Top government sources told Hindustan Times that the national security planners believed that firewalls were needed as India and China had many outstanding disputes and legacy issues.

These primarily related to the unresolved 3,488 kilometre-long boundary dispute apart from Beijing using Islamabad as a proxy to hit at New Delhi on all fronts including keeping Jammu and Kashmir on a permanent boil.

Until the spread of Covid-19, Raisina Hill was not warm to the idea of government oversight on Chinese FDI, with a strand of thought dominating that such a move could affect FDI inflows into India. Besides, it was felt that it could unsettle the fragile equilibrium in India-China bilateral relations, sources pointed out.

The institutional knowledge of economic affairs, commerce and industry as well as ministry of external affairs relegated such a policy proposal change to the back burner.

The Covid-19 outbreak provided an opportunity to Modi 2.0 to operationalize the FDI changes, with the proposal now enjoying bi-partisan support within India’s security and policy brainstrust.

The Cabinet chaired by Prime Minister Modi cleared the policy on April 17 with total support from Home Minister Amit Shah. Finance Minister Nirmala Sitharaman, External Affairs Minister S Jaishankar and Commerce and Industry Minister Piyush Goyal.

That this was an idea whose time had come hit home on February 1, when the government realised that there was hardly any Indian company that was manufacturing either personal protective equipment, ventilators or masks that the whole world is shopping for in the fight against the Covid-19 pandemic.

Concessions to Chinese imports had also virtually pushed manufacturing out of the country including production of the much-needed critical active pharmaceutical ingredients (APIs).

There have also been concerns within the government that its signature “Make in India” initiative, first launched in 2014 to turn India into a manufacturing powerhouse, was being severely impacted by the allowances that had been extended to China.

China is India’s largest bilateral merchandise trading partner, but the balance of trade is heavily tilted in favour of Beijing.

Total India-China bilateral trade stood at USD 95.7 billion in 2019, with a deficit of USD 58 billion in favour of Beijing.

The total Chinese FDI investment as per industry is USD 6.2 billion in India.

The latest move is part of a series of steps that the government has taken since the start of this week after Housing Development Finance Corp. Ltd (HDFC) said that People’s Bank of China (PBOC) had raised its stake in the home lender from 0.8% to 1.01% in the March quarter through open market purchases.

This led many to voice concerns that India’s systemically-important companies could be vulnerable to creeping take over from foreign investors, aided by dropping valuations.

2020-04-20 07:07:14

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