The Indian government has amended FDI policy to put a blanket ban on investments through the automatic route by entities from countries that share a border with India. The move is seen as an attempt to ward off the threat of "opportunistic" Chinese takeover of Indian companies, whose valuations have been hit due to the coronavirus pandemic. The curbs, which were already in force for investments from Pakistan and Bangladesh, will extend to entities where Chinese citizens have “beneficial ownership” to ensure that the restrictions are not circumvented by routing investments via Hong Kong, Singapore or other countries.
The latest move signals the worry in the government that China might seek to acquire Indian companies by exploiting their financial vulnerability during the crisis triggered by the coronavirus. The bold move is in stunning contrast to the restraint the Modi government has exercised in not joining the global chorus of indignation over China's attempt to conceal the outbreak of the pandemic in Wuhan - a lapse that has been widely adjudged to have been a major contributor to the enormity of the public health emergency that has already claimed nearly 1,70,000 lives globally and triggered a collapse in share markets.
Sources in the government said there was a real threat of Chinese entities - many of the big ones are controlled by the Communist rulers in Beijing through a web of opaque linkages - moving in to take up Indian companies which were doing well until the pandemic rendered them vulnerable and tempting targets. The linkages are why the security establishment here has considered investments from China to be a risk.
Government sources said while the the move has been in the pipeline for a while, Covid-19 helped the government make up its mind expeditiously. The move coincides with similar barriers erected by other countries - Germany, Italy, Spain and Australia, to block predatory capital from China.
India's decision , however, is different in one vital respect. Unlike in other cases where the filters are aimed at investments in general, the Modi government's decision is specifically targeted at China given that the automatic route was already closed for flows from Pakistan and Bangladesh. The bluntness of the government's decision reflects the seriousness of its worry.
