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Govt, Congress united by 'imbecility': Order restricting investments from 'neighbours'

By Mohan Guruswamy*
A couple of days ago Rahul Gandhi demanded that the government "protect" Indian corporations from takeover by cash flush Chinese entities. He was spurred after it was announced that the Peoples Bank of China (PBOC) has increased its shareholding in HDFC from 0.8% to 1.01%. The Chinese Central Bank had bought these 1,74,92,909 crore HDFC shares worth about Rs 2900 crore between January and March 2020. This level of shareholding won’t even give PBOC a stool next to the watchman's at HDFC’s front door.
Yet the government responded to this somewhat immature and kneejerk demand with surprising alacrity. It responded the very next day with a hasty order that entities from countries that share land borders with India -- Pakistan, Afghanistan, China, Nepal, Bhutan, Bangladesh and Myanmar -- have to take permission from the government prior to making investment. In a day when money doesn’t move in chests atop camels, what have land borders got to do with it? This order is just not artful enough to conceal that it is aimed at China.
As before, investors from countries not covered by the new policy only have to inform the Reserve Bank of India (RBI) after a transaction rather than asking for prior permission from the relevant government department. That means investors from Mauritius ($8.1 billion in 2019) and Singapore ($16.2 billion in 2019), from where about 50% of our FDI ($49 billion in 2019) comes and USA, UK, EU and Russia etc. can invest as usual. The first two countries are the more favored conduits for Indian money stashed overseas.
According to the Department for the Promotion of Industry and Internal Trade (DPIIT) India received FDI from China worth $2.34 billion (Rs 14.846 crore) between April 2000 and December 2019. This merely rose from $1.4 billion by about $900 million in the Modi era.
During the same period, India has attracted Rs 48 lakh from Bangladesh, Rs 18.18 crore from Nepal, Rs 35.78 crore from Myanmar, and Rs 16.42 crore from Afghanistan. The Chinese portfolio investments in startup companies such as Snapdeal, Ola, Swiggy, Paytm etc. now amount a little over $6 billion. In all this makes overall Chinese investment in India an unthreatening 1.3% of the cumulative FDI ($621 billion) since 2000.
The note specifically aims at curbing “opportunistic takeovers or acquisitions” ignoring the reality that all such buys are just that. And let us not forget that the Jaguar-Land Rover and SsangYong sales to Tata Motors and Mahindra’s were distressed sales. Good times and bad times are equally opportune for corporate buys. Can the government tell us why American or British or Korean FDI are better than Chinese investments in these times?
The governments order is a blanket order that does not distinguish between greenfield or brownfield investments or listed and unlisted companies. For all practical purposes, it just is a case by case handbrake on Chinese investments. Our policy hitherto allowed FDI in particularly distressed sectors like construction and real estate. These sectors were stressed long before the advent of Covid-19.
There are more distressed sectors now, so shouldn’t we be getting the cash flush Chinese to invest in them? It’s not that Indian companies are not flush with cash. We have as many as 52 companies with cash reserves in excess of Rs 25000 each. The problem is that they are not investing in India and have showed a marked preference to invest abroad. In March 2020 alone Indian FDI outflows touched $2.68 billion. It was $2.34 billion in March 2019.
China-made TV and mobile phone kits keep flooding India as do firecrackers, kites, manja, pichkaris, milk-drinking plastic Ganeshas
For over a decade Indian Prime Ministers have been soliciting Chinese investment, partly to mitigate the huge trade deficits we have been posting with it. Last year it was $57.4 billion. Heavens are not going to fall if Chinese companies invest more like when SAIC (MG cars) took over the defunct GM plants. Or if Haier competes more aggressively with the dominant positions of Samsung and LG in white goods. India benefits by this. 
One can understand if we have a policy against Huawei in 5G, but we have welcomed it. Chinese investors have made big bets in India's startups like Flipkart, PayTM, Zomato etc. and driven them up to huge valuations.
Instead of FDI, we should be taking a good look at the growing trade deficit with China and narrowing it down. Yet we have no policy on it. TV and mobile phone kits keep flooding India as do firecrackers, kites and manja, pichkaris and milk drinking plastic Ganeshas. Then we have big retailers like IKEA, which mostly sell Chinese goods.
Finally, we must realize that money doesn’t have any color. The litmus test for FDI should only be whether it adds value to our economy and adds to our employment. Any company, irrespective of the predominant nationality of its shareholding, is an Indian corporate citizen and is bound by Indian laws and policies.
Thus, if the government demands that, say, Nestles and Brooke Bond must export 20% of their instant coffee or face fiscal disincentives, or buy coffee or cocoa beans only from local producers, they have to comply. And contemplate this. Even in a conflict with China, SAIC and Haier will keep producing in India, like Bayer kept producing poison gas for the Allies and Germans during the First World War.
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*Well-known policy analyst. Source: Author’s Facebook timeline

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