Q . Many cite the recent Foreign Direct Investments’ (FDI) restrictions imposed by India as a violation of World Trade Organisation’s (WTO). Examine the government’s move. 13TH, NOVEMBER,2020 (10 marks, 200 words, GS-3)
- In the introduction what the government has done and what are the arguments raised by the government.
- Second para to include the issues raised and the precedents
- The final para to include the further measures needed and what more can be done.
After the recent stand-off between India and China along LAC, Indian government has put certain restrictions over foreign investment from neighboring countries, in general and China, in particular.
What the new rules stats?-
- Firms in neighbouring countries wanting to invest in Indian companies would first need its approval.
- An entity of a country that shares a land border with India can now invest in firms here “only under the Government route”.
- This also applies to “beneficial” owners– even if the investing company is not located in a neighbouring country, it would still be subject to these conditions if its owner is a citizen or resident of such a country.
Government stated the following arguments for the move-
- Policy is not aimed at any one country
- The move is aimed at curbing “opportunistic” takeovers of Indian firms, many of which are under strain
- Policy do not prohibit investment, just changed the route of approval
- Other countries like Spain, US, Italy, etc. too have implemented investment-related restrictions
Issues raised by the opposition and affected countries-
- Issue of discrimination
- Potential violation of non-discriminatory obligations under the General Agreement on Trade in Services and WTO, if the sectors concerned involve services.
- Will hit a wide range of companies that have some component of Chinese investments
- Indian companies are starving for capital.
- Automobiles, electrical equipment, book printing, services, and electronics were the top five sectors attracting investment from China.
- Indian startup space could also suffer without the cushion of Chinese money.
Precedent incidents where the similar decisions were taken-
- While FDI in pharmaceuticals had been allowed under the automatic route until 2011, the government had mandated approval for any investment coming into the sector from November that year.
- In 2010, the government banned FDI in cigarette manufacturing following recent announcements by Japan Tobacco that it would increase stake in its Indian subsidiary to 74 per cent from 50 per cent.
Way forward for further improvements-
- Promoting investment but national security in mind
- No ill-willed funding to occupy the Indian firms
- Restrictions should not dent the Indian companies in the long run
- Alternatives need to be found for such companies
- Government route approval should not lead to red-tappism
- Ease of Doing Business has to be in mind while national interest should also not be neglected.