Beijing calls New Delhi’s move to amend FDI norms discriminatory

China on Monday accused India of discriminatory practices and demanded that it revise its foreign direct investment (FDI) norms, which were changed over the weekend to prevent the takeover of Indian firms in a covid-19 pandemic ravaged economy.

India’s department of promotion of industry and internal trade (DPIIT) had on Saturday while revising the country’s FDI regulations had stated that “an entity of a country, which shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the government route”.

India did not name China, but it was obvious that the move was aimed at preventing hostile takeovers by Chinese companies of Indian firms whose market values have dipped because of covid-19 related uncertainties. The move comes after similar changes in regulation by countries such as Australia, Germany, and the Czech Republic in recent months.

A spokesperson for the Chinese embassy, Ji Rong, said the move is not in line with India’s World Trade Organization (WTO) and other multilateral commitments, in the country’s first reaction since New Delhi tweaked the rules.

“The barriers set by the Indian side for investors from specific countries violate WTO’s principle of non-discrimination and go against the general trend of liberalization and facilitation of trade and investment,” Ji said. “More importantly, they do not conform to the consensus of G20 leaders and trade ministers to realize a free, fair, non-discriminatory, transparent, predictable, and stable trade and investment environment, and to keep our markets open,” she said, referring to virtual meetings of the group in the wake of the coronavirus outbreak.

“Companies make choices based on market principles. We hope India would revise relevant discriminatory practices, treat investments from different countries equally, and foster an open, fair and equitable business environment,” Ji said.

The Indian foreign ministry did not react to the comments by China.

India’s tweaking FDI rules are not in violation of WTO norms that allow countries to make such changes when issues of national security are at stake, said a person familiar with the matter. India is not the only country to make such modifications in policy, the person said, pointing to several countries in Europe that had changed their laws or made new ones to cope with similar situations.

Biswajit Dhar, a professor of international trade at Jawaharlal Nehru University in New Delhi, also reiterated that India had not violated WTO rules. Dhar agreed that at the G-20 trade ministers’ meet last month countries had agreed to keep markets open. “But one has to temper that with the reality on the ground,” Dhar said. The possibility of hostile takeovers was very much real in the present economic environment, he said.

Till December, Chinese investments in India had crossed $8 billion, Ji said. “Chinese investment has driven the development of India’s industries, such as mobile phones, household electrical appliances, infrastructure, and automobile, creating a large number of jobs in India and promoting mutual beneficial and win-win cooperation,” she said. “Facing the economic downturn caused by covid-19, countries should work together to create a favourable investment environment to speed up the resumption of production and operation of companies,” the spokesperson said.