By Unnat Agrawal

“Love thy neighbour”, they say. Every relation has some differences and they are only natural in this geographic-relationship of a neighbour. In this case of contiguous nations India and China, the difference is a mere 0.21%. But is it that small after all?

FDI Amendment 2020

India as of 17th April 2020 has amended its Foreign Direct Investment Policy for the foreseeable future. Not quoting the statement, in a gist it basically said, the statement states that citizens of countries which share a land border with India can invest in Indian firms (prohibited sectors only) only through government approval. The government in these situations have the authority to decide if such firms get to invest and if they do so, the extent of it too. This statement comes in at a time right after the People’s Bank of China increased its stake in India’s HDFC Bank by 0.21% from 0.8% to 1.01%. The move is considered as a prevention measure from ‘opportunistic takeovers or acquisitions of Indian companies in light of the current COVID-19 pandemic’.

The statement, although not stating directly, implies mostly to China. This is a critical situation keeping in mind the grave effects the pandemic will bring upon the economy of almost all nations worldwide.

Read the official statement here: https://www.thehindu.com/business/Economy/government-nod-mandatory-for-fdi-from-neighbouring-countries/article31379229.ece

Why was it important?

This amendment to the FDI Policy was critical in preventing the reins of the economy falling into another entity’s hands. In this state of the economy where no value is being added to the economy, the stock prices for most of the firms have plummeted to an unpredictable low. This meant that entities capable of investing in high-profile and high-returns stocks could do so at a fraction of the price they would have had it not been for the lockdown. Although there are not a lot of takers in this market situation as the pandemic has paralysed the world economy, publicly owned companies of powerful nations (namely China) were still eyeing these gold standard stocks. Naturally, the People’s Bank of China had their eyes set on the stocks of HDFC and managed to cut a deal at a lower price for approximately 1.75 crore shares of the same.

Facebook- Jio cut a deal

Although gone under the radar, right after the news regarding the amendment had started cooling off, Mark Zuckerberg led Facebook, invested in Reliance Jio by purchasing a mighty 9.9% stake for a reported Rs. 43,574 crores. This news does not come in as a shock for anyone because Jio has been a high-performing stock and however unpredictable the stock market is, this stock is expected to give high returns in the future. This investment is the highest FDI in India’s Technology sector and now Jio is valued at a whopping $65.95 billion. It is a move beneficial for both parties as this investment has cut down Jio’s debt and also increased Facebook’s foothold in the Indian Market which already is a huge market for the Menlo Park based social giant.

Mark Zuckerberg had high praise for Indians and Reliance, as evident from the statement he gave. Read about it here-https://www.moneycontrol.com/news/business/companies/facebook-jio-deal-heres-what-mark-zuckerberg-has-to-say-5174881.html

Although the move is seen as a mutual one, the two companies have had their differences; regarding data collection. Jio wants India’s digital data to be owned and managed by Indian firms instead of MNC’s. What this means for the users is that Jio wants all of its user’s data to be accessible by Indian authorities. Facebook, however, has been fighting off opposition citing that data access shall not be made available to anyone, and it should stay encrypted without anyone being able to access it from anywhere. This might put the companies on a crossroads as they plan to launch multiple projects together in the country and their varying stance on data access might create a problem. But that is something which will be decided in the future. For now, this investment comes in at a time when Modi government is trying to refrain from major investments from foreign countries to prevent economic turmoil; and this does not make for good reading for those running the show. 

International impact

India although doesn’t state China directly in its statements, the intention seems to be aimed at China directly. Although debatable, India is not the first country to put such measures in place. Australia and several European nations had already put restrictive measures to prevent such acquisitions and takeovers.

An interesting fact is that India has just targeted bordering nations in the amendment and has left out other countries from such measures. Its focus seems to be fixated on the firms of China. But China has had a past of opportunistic investments all over the world. It has invested possibly trillions into Africa to increase its power and presence in the continent. It has invested in infrastructure, natural resources and not so surprisingly, ports (China being a huge exporter).

Coming to India, China has always had the intention of gaining more foothold in the region and has gone to great distances to achieve the same. The China Pakistan Economic Corridor has given access to China into ports too close for India’s comfort. This just proves how opportunistic China has been with its investments. 

China’s Response

In a lengthy and detailed statement, the Chinese government has reiterated that India needs to rethink their decision. They have labelled the move as discriminatory and in violation of the WTO’s policies which both India and China are a major part of.

These statements might sound desperate and to back up their agenda, the Chinese government has cited examples of past investment and trade to prove that China has been an integral part of India’s growth economically. China has retaliated India’s actions with a strong but desperate statement and accusations. How the government of India counters the plea is still to be known.

Read about their response here: https://www.indiatoday.in/india/story/china-objects-to-india-s-revised-fdi-policy-that-blocks-takeover-of-stressed-firms-1669096-2020-04-20

When India first opened up its markets for Foreign Investment, the economy was expected to be given a boost and ultimately pave a path for India into the group of developed economies. With Manmohan Singh at the helm of the Finance Ministry at that time, the economy was touted to make India a powerhouse in the near future. With this precautionary step, Narendra Modi led NDA has decided to give priority to the nation’s firms and get out of this pandemic, still under Indian control. Desperate times require desperate measures, and this step, although desperate, is in the best interests of the nation. 

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