Soliloquy

The decision by the Indian government to wall off Chinese companies trying to purchase shares and trying to take over distressed Indian organisations has come at a good time. While the entire world has blamed the Asian major for not being able to contain the virus and spreading it, only Donald Trump, the American president has come out directly warning Beijing of dire consequences if it was found that it had done so wilfully.

India, however, cannot take such a big step and it would be imprudent for her to even think that far ahead, but the latest regulation by the Department for Promotion of Industry and Internal Trade (DPIIT) that entities from any countries which share a land border with India have to get approved by the government if it intends on investing in more than 10% in the equity shares of Indian companies, is momentous.  

There has seldom been such a Foreign Direct Investment ruling of this scale before and although it tends to lean on the sentimental, its heart is in the right place. The big question which now remains is how the companies which have relied for years on Chinese capital and who are struggling to stay adrift at the moment due to the huge economic dent created by COVID-19, will cope. 

Former government analyst Mohan Guruswamy, in The Economic Times, wrote scathingly that unless the government had any plan to support these organisations, there did not seem to be a point in trying to ward China off. It seems as if this decision was made only to score points off the country and to tell them that India would not back off from a fight. 

However, a real battle still has to be fought as these investors made a heavy cash influx into the Indian economy, and it is only us who are going to suffer vigorously from it. Who will these Indian companies turn to now that they will lose their majority investors? Will they struggle to remain afloat as the government, in its usual dilly-dallying, has not offered anything for them in fiscal changes yet? 

How could the government take such a big decision without having thought of how it will affect the SMEs that India is heavily reliant upon? The Indian smartphone and automobile industries, for example, rely heavily on Chinese investments and they are going to be those among affected the worst by this decision. 

The government acted upon this plan when it became clear last week that the People’s Bank of China had upped a percentage of its share in India’s HDFC Bank to close to 1 per cent. It was not a worrying number but the government has acted hastily without thinking of the consequences. In the 1950s and 1960s, countries like Hong Kong and Singapore benefitted strongly by having FDIs from bigger economic entities. India, however, opened up its economy after 1991 and whatever gains had been made so far, will be nullified with this ruling.

Taking a stand against China’s misgivings is a bold move in the present circumstances, but by taking the financial route, the government runs the risk of harming its own business actualities. As Guruswamy also said, money is money and it does not matter from where it comes as long as it comes. Indian benefactors will thank the government immensely if anyone, be it Chinese or anyone else can help in purchasing their shares in such distressing times. If that means that takeovers rule the roost and become the norm instead of the exception, so be it.