In the midst of the unprecedented Covid-19 crisis that has plagued the whole world, the Indian government came out with a major change in the foreign direct investment (FDI) norms. It aimed at regulating the FDI inflows and prevent the likely takeover of Indian companies from countries, sharing land borders with India.
Though no country was named, it took no second guess to realise that the move was aimed against China. And as expected, China did raise a hue and cry and as its diplomats have shown the world that it too can indulge in a brand new, brash and aggressive, bordering on dominating diplomacy, it pointed out that the move is against the WTO regulations and principles of free trade.
India of course, stuck to its ground and China was forced to revert to the usual, diplomatic tone, hoping that India would reconsider the revised norms. However, there has been a high degree of domestic support and no international opposition, sans China, behind the Indian move.
And there is a good reason behind it. The Covid-19 pandemic that has brought the world to its knees has created a feeling of ill-will against China. On its part, China with its diplomatic muscle-flexing has not made the situation any better.
However, from an Indian perspective, there are reasons to be wary and flexible, at the same time too. The past experiences with China, its strategic-economic debt diplomacy with African and Asian countries, questionable BRI initiative and doubtful role in the global spread of Corona pandemic, certainly supports the recent policy manoeuvring of the government.
There are further economic reasons for pursuing this cautious policy too. It is not that the government got panicky just because the People’s Bank of China raised its stake in HDFC, one of India’s most trusted companies.
The reason lies in the lack of transparency in Chinese investments in India. While the Indian government estimates suggest the cumulative FDI of China in our country to a mere $2.3 billion for April 2000 to December 2019 period.
The Chinese government estimates put it at around $8 Billion whereas Brookings Research pegs it to about $26 Billion. And that includes $3.9 billion investments in Indian start-ups, mostly in the last six-seven years.
Further to complicate matters, there are reports that the Chinese have been investing in multiple ways and through various routes. Some of them are making it through their subsidiaries or sister companies in Hong Kong, Singapore or through Mauritius.
What, however, sets apart the Chinese investments than others are that ultimately all such companies directly or otherwise, are owned by the Chinese government. And that is something that sets the alarm bells ringing, not only in New Delhi but in other major capitals around the world too.
The issue of concern is that such investments, supposed to be commercial in nature, maybe tweaked to suit politico-strategic interests of the Chinese state and the government, as and when required.
In the background of such developments, it is inevitable that the Indian state has to take some pre-emptive actions to prevent opportunistic takeovers, as may be tried out by the cash-rich Chinese companies, prompted by the Chinese state. And hence, these step by the Indian government deserves support.
However, the issue has another side too. The world is reeling at the disastrous impact of this pandemic which it rightfully feels owes its genesis to China. There is currently a considerable amount of hostility towards China in most parts of the world too and that has been further proved by the recent report of Pew Research.
Even before the Covid pandemic struck, trade disputes with the US, Europe and India did affect the Chinese significantly which in recent years has become too much aligned with the global economy.
No wonder the Chinese investments in the US, Canada and Europe recorded a considerable decline. From a peak of $107 Billion (2017), it crashed to a mere $19 Billion (2019), the lowest in the last ten years, a whopping 83% decline. Further, some of its most ambitious acquisitions planned, like the Three Gorges’ $10.3 Billion bid to take over Portugal’s Energias de Portugal got derailed.
Its average deal size in North America and Europe went down from $300 million and $526 million (2017) to $28 million and $132 million (2019) respectively.
India post-Covid too, will need a huge dose of investments to spurt its economic activities. In such a post-lockdown, post-Covid situation while the European and US companies are unlikely to be in a position to make big investments in India immediately, the cash-flush Chinese companies will be scouting for big-ticket investments.
Their popular destinations in Europe and North America, at this point of time, are unlikely to welcome their investments and there comes an opportunity that India can and should exploit to the tilt.
What India can do and probably moving towards doing is that barring strategic sectors like space research, defence, telecom, energy and financial services, most of the other domains may be opened up for investments for all including the Chinese.
Automobiles, real estate, pharmaceuticals, travel and tourism, infrastructure like highways, ports and airports are some of the areas that require billions of dollars for investments and getting Chinese investments there will come in handy. Sources in Indian Pharmaceutical Alliance have indicated that almost 70% of critical pharma ingredients in the country are dependent on Chinese imports.
The huge credibility of Indian pharma industry on the global scale might take a beating if imports from China are drastically reduced at one go. In the automobile segment too, accessories from China make up a substantial part of the Indian automobiles, both for domestic and global markets. On way to a greater resilient economy, India needs short-term dependence on critical imports from China.
And China will need India, notwithstanding its bizarre aggressive policy on the borders, because today the world does not trust China much. That will give a spurt to economic activity, build up infrastructure and lead to millions of direct and indirect jobs.
The recently revised policy notwithstanding, government sources had in May indicated that Chinese investments may be fast-tracked, depending upon the sector and mode of investment and that may be done from as little as two weeks to four weeks.
However, the government will be within its right to ensure that the investment is done in the sector or companies that do not fall within the strategic domain.
In the backdrop of the current tense situation on the borders, there is a considerable amount of hostility against China and its commercial activities in India. India has rightly hit it with banning more than hundreds of popular Chinese apps, throwing out Chinese big companies from lucrative railways, telecom and huge infrastructural contracts and promoting import substitution, especially from China under the ‘Aatmanirbhar Bharat,” initiative.
The results might not have been massive economic setbacks for China but certainly, these steps have dented Chinese self-esteem and standing globally. No wonder, TikTok has become desperate to be bought by native companies in the US, UK and India.
Further, the Chinese interest in the Indian start-ups is positive from the investment perspective. At the same time, state intervention may be required to ensure that the said investment does not get into those start-ups who have a strategic dimension, those working in the realm of space, oceanographic research, security, artificial intelligence (AI), data analytics and so on.
Another important aspect that the government has already initiated work on relates to data security. The Indian insistence on companies using data from servers based in the country and not abroad, has been a major forward movement.
The most significant dimension of Chinese investments in India is that we need to broaden our horizon and think of using it as a leverage in protecting and promoting our national interests. The OPEC countries by nationalising and regulating their oil companies forced the western MNCs to stick to their respective regulations.
There have been many instances in the past when by changing our economic regulations we have forced MNCs like Caltex, Burmah Shell (in the 1950s), IBM, Coca-Cola (1977) and Vodafone, Nokia in recent years to toe our line. There is no reason to think that we cannot do the same vis-à-vis the Chinese companies even though they are indirectly controlled by the Chinese government.
Using the Chinese investments for enhancing our economic betterment and using the same as a leverage to promote our national interests and strategic objectives is something that we can do with China as well.
India is a big market and a huge talent pool at the same time. No country, including China, would like to miss out on it.
The equation is simple: we need massive investments, particularly in the infrastructure sector to enhance our economy and create millions of required jobs. A substantial chunk of Japanese, Korean and western investments in the post-Covid world would like to shift from China to other places, including India whereas Chinese investments there may not be as welcome as it had been till a few months ago.
Creating a favourable economic climate for all of them while luring cash-rich, few places to go, Chinese investments with sensible restrictions, may well pave the way for the big push that Indian economy requires today in the forthcoming post-Corona scenario at one of the most crucial junctures witnessed in its independent history.
Rajesh Kumar Sinha, Indian Railways