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Business News/ News / India/  India may put restrictions on Chinese FPIs
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India may put restrictions on Chinese FPIs

On 18 April, India tweaked its FDI policy, mandating government clearance for all such inflows from countries with whom it shares land borders to ring fence the Indian industry from opportunistic acquisitions by Chinese companies

China remains India’s second largest trading partner after the US. (Photo: iStock)Premium
China remains India’s second largest trading partner after the US. (Photo: iStock)

NEW DELHI: India may restrict Chinese portfolio investments into its equity markets as part of an economic response it is contemplating after 20 Indian soldiers were martyred in a violent face off with troops from the neighbouring country along the border in Ladakh.

"Sebi (Securities and Exchange Board of India) and the Economic Affairs department in the finance ministry are working on it. Some restrictions on Chinese FPI (foreign portfolio investments) may be taken soon," a senior government official said on the condition of anonymity.

Mint reported on 14 April that Sebi put in abeyance a decision that mandated vetting by the markets regulator of new FPI applicants coming in from neighbouring countries, including China. The regulator had said it was awaiting clarity from the government.

On 18 April, India tweaked its foreign direct investment (FDI) policy, mandating government clearance for all such inflows from countries with whom it shares land borders to ring fence Indian industry from opportunistic acquisitions by Chinese companies.

The move followed after Housing Development Finance Corp. Ltd (HDFC Ltd), on 12 April, said the People’s Bank of China (PBOC) had raised its stake in the home lender from 0.8% to 1.01% in the March quarter through open market purchases. This had triggered concerns among many investors that given the sharp sell-off in the wake of the coronavirus pandemic, some stocks had become susceptible to acquisition through the foreign portfolio investment (FPI) route.

However, the official quoted above said India is unlikely to push for a trade war with China like the US. “Who pays in such tariff wars? It is the domestic consumers who suffer. However, in case of non-essential imports, we can encourage domestic manufacturing by strengthening domestic standards. Our options are limited in case of raw materials and intermediate goods imports from China."

Jayant Dasgupta, former India ambassador to the World Trade Organization, said India will be hurting itself if it tries to stop imports from China. "We are dependent on China for power and telecom equipments, rail coaches and pharmaceutical ingredients...We have to take a reasoned decision. Consumer goods are one sector where we can reduce our dependency from China, but in sectors where we don’t have alternative suppliers and the industries are growing very fast, we can’t curb such imports."

China remains India’s second largest trading partner after the US. India’s exports to China rose 3.8% to $17.1 billion in 2019 while imports contracted 7.5% to $68.3 billion. The widening trade deficit with China has remained a cause of concern for India. China in recent times has been diverting a part of its exports to India via Hong Kong to hide the actual extent of trade deficit. In 2019, India’s trade deficit with China and Hong Kong put together declined for the first time in recent years to $56.5 billion from $60.1 billion in the preceding year.

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Published: 18 Jun 2020, 09:39 AM IST
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