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India is right to impose barriers on China. But there is a price tag: editorials

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The pandemic has seen great power rivalry worsen, and economic factors (infrastructure, technology, and finance) move to the heart of geopolitics. India must walk a very fine line. In its current state of development, it needs to expand its economic commitments abroad, even being sensitive to its external security needs.

editorials
Updated: Apr 19, 2020 17:28 IST

A purely arbitrary method of deciding what types of investment is allowed would be a setback to India's decades-long attempt to be more attractive to investors from all countries.
A purely arbitrary method of deciding what types of investment is allowed would be a setback to India’s decades-long attempt to be more attractive to investors from all countries (HTPHOTO).

India has followed a half-dozen countries to impose restrictions on foreign investment due to the condition of its national companies affected by the pandemic. The auto route is now closed to investors from India’s land neighbors. This new regulation clearly has only one objective: China. New Delhi is just the last country to fear that a recovering China will take advantage of valuable evaluations from companies of national importance. India has long had barriers to Chinese stakes in critical infrastructure and technologically sensitive companies. The expansion of the investment projection to all sectors is an almost natural progression. Purchases of HDFC Bank shares by China’s central bank were just one trigger.

However, New Delhi should not be under any illusions. Foreign capital remains crucial to the country’s economic success, and will be doubly important as India tries to revive its economy. Making it more difficult for China will come at a price. China has been the fastest growing source of foreign investment in the past five years. And Chinese investors have shown a remarkable appetite for risk and now have a substantial presence in more than half of India’s unicorns. A purely arbitrary method of deciding what types of investment is allowed would be a setback for India’s decades-long attempt to be more attractive to investors from all countries. As the selection process matures, the Industry and Internal Trade Promotion Department must develop a clear process and precise regulations to decide what is an acceptable investment. The question of offshore fund investments and who is the ultimate “beneficial owner” of an investment is more complicated, although it must be recognized that they are used because India remains a difficult business environment.

The spread of investment barriers is a reminder that economic openness is declining globally. China is not innocent. Look at their resistance to Indian service exports. The pandemic has seen great power rivalry worsen, and economic factors (infrastructure, technology, and finance) move to the heart of geopolitics. India must walk a very fine line. In its current state of development, it needs to expand its economic commitments abroad, even being sensitive to its external security needs.

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