India has recently introduced a new policy on foreign direct investment (FDI), which has made a tougher policy on acquisition of the assets of companies by foreign investors, amid the major setback of the Indian companies caused by the coronavirus outbreak.
A Chinese embassy spokesperson said on Monday, April 20, 2020, that India’s new FDI has violated World Trade Organization (WTO) principles of non-discrimination and criticized as the new rules were targeting especially China.
India’s New FDI policies
On Saturday, India moved to strengthen its rules against foreign investors and investment companies from neighboring countries, which was widely considered to be a strategic move to prevent companies takeovers by Chinese firms during the coronavirus outbreak. Without mentioning China in its new policy statement, the federal government stated that the changes to federal rules on FDI were aimed at curbing opportunistic takeovers and acquisitions of Indian firms.
Other countries including Australia and Germany have taken similar steps to prevent unfair takeovers of companies by foreign investors. The Australia government declared that all proposals related to foreign investment would be examined by a special review board during the coronavirus crisis to prevent a fire sale of distressed corporate assets.
Currently, India is going through the phase-2 national lockdown due to the widespread pandemic which forced to shut all business operations in the country. With the harsh impact on the economy of the country, the pandemic had caused setbacks on Indian stock markets that fell 25% since February 15, which had wiped out tens of billions of dollars of value.
China Criticized India’s New Policies
Ji Rong, a spokesman at the Chinese embassy in New Delhi, said in a statement, “The impact of the policy on Chinese investors is clear,” The statement mentioned that China’s cumulative investment in India, as of December 2019, has crossed over $8 billion, which was greater than the total investments made by other neighboring countries of India combined.
The latest move of India was criticized by China alleging that it was against free and fair trade of WTO and would perhaps open a new backlash in their uneasy ties between the two countries. Chinese President, Xi visited India last October and promised for new trade and strategic relationship between the two; however, the recent move might have spoilt such promises.
Rong said China hoped that India would revise ‘discriminatory practices’ while some experts believed that the move could hurt the trade relationship between Beijing and New Delhi as the policy targeted Chinese investment.
Nikhil Narendran, a partner in Trilegal, explained, “It appears that the government feels that if China’s money-pumping goes unchecked, it could have a drastic impact on the ownership of assets in the country.” Narendran claimed, “This will definitely have trade implications,” adding it could also result in hardship to Indian start-up firms for their funding.
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