Centre unlikely to adopt open-door policy for Chinese investments soon; FDI only in sectors crucial for India

ET Now Digital
Updated Mar 03, 2021 | 09:53 IST

The government is likely to approve large Chinese investments in areas that have a minimal Indian presence. However, security clearance will continue to be obligatory in all cases.

China FDI
Centre unlikely to adopt open-door policy for Chinese investments soon.  |  Photo Credit: BCCL

New Delhi: The Centre is unlikely to adopt an open-door policy for Chinese investments anytime soon. However, the government is reportedly considering opening the door to foreign direct investment (FDI) to a limited extent where local manufacturing units don’t have sufficient capacity or in sectors extremely crucial to India’s interests.

Earlier, reports surfaced that the government was planning to start the process approve FDI proposals from Beijing on a “case-by-case” basis, lifting restrictions that were put in place to prevent opportunistic takeovers or acquisitions of Indian companies because of the pandemic.

Worth mentioning here is that security clearance would continue to be compulsory in all cases, and as a part of a standard operating guideline all investment proposals from Beijing are to be examined by the ministry-concerned, Also, the proposals will get clearance those from entities or investors based elsewhere but sending funds through Hong Kong and those that entail small investments by Chinese investors.

“Proposals are being examined as per three key guidelines... Any proposal entailing large investment would have to be in a critical area where there is minimal or negligible local presence,” a government official with knowledge of the matter told ET. He went on to add that these standard operating procedures(SOPs) direct the approval mechanism.

Amid talks about putting a limit for Chinese investment, below which prior approval for sectors that are on the automatic approval route would be waived. No final decision, however, has been taken on setting such a cap, the business daily said.

In April, the Department for the Promotion of Industry and Internal Trade (DPIIT) had issued guidelines mentioning that foreign investments from countries that share a border with India will require government approval from now on. The rules change in April had hit Chinese entities as they had emerged as a big source of flows in recent years, especially in the digital and technology sectors. Since April, the Centre had received over 120 FDI proposals worth about Rs 12,000 crore from China.

Last year, tensions were running high between India and China along the border area, with reports of clashes between troops at multiple locations in Ladakh and one location in Sikkim. New Delhi and Beijing started disengagement last month, raising hopes of easing restrictions on Chinese FDI and quicker approval. That’s unlikely, as per people familiar with the matter, the financial daily mentioned.

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