Due to the continuing face-off on the Sino-Indian border since April 2020, there has been an intensified screening of foreign direct investment (FDI) proposals from countries sharing land borders with India, obviously targeting China.
The latest official numbers indicate that FDI interest from the dragon nevertheless remains strong and proposals have been cleared depending on whether they add value to the country’s manufacturing capacity. Applications seeking approval for investments of over Rupees 1 trillion have been filed since the curbs were imposed from April 2020, half of which have been cleared, according to a report in this newspaper. This is indeed good news and must translate into actual investments. Although this huge number applies to all the countries bordering India, there is no doubt that the bulk of it is from China as Bangladesh, Bhutan and Nepal have so far made only marginal investments here.
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The Rupees 50,000 crore of cleared proposals since April 2020 must be seen in the context of FDI inflows from China and Hong Kong. Over this period, Rupees 961 crore of equity inflows had come in from China. The cumulative inflows from April 2000 to September 2023 amounted Rupees 16,073 crore. From Hong Kong, inflows amounted to Rupees 2,559.6 crore since the curbs were imposed as against total investments of Rupees 29,780 crore from April 2000 to September 2023, according to the department of promotion of industry and internal trade. The cleared proposals obviously represent a much larger magnitude than the actual inflows since April 2020, indicating a much more robust intent to invest in the country by the mainland. Far from indicating a shutdown of Chinese investments as feared, they point to India’s continued attractiveness as a destination for FDI. All of this should be definitely welcomed.
The fact that the Chinese have continued to invest after April 2020 is evident from Tencent acquiring a 1% holding in Walmart in June 2022. Even if some like MG Motors India have faced restrictions, they have found a way to raise resources through local partners. To modernise its plant and introduce newer models, the parent, SAIC Motor, has recently formed a joint venture with the JSW Group to further develop the electric vehicle ecosystem in the country The online fashion group Shein Group, which was among the Chinese apps banned in 2020, has tied up with Reliance Industries to sell its clothing. But there have also been big-ticket investment plans that have not materialised like that of Great Wall Motors. BYD’s proposal to build electric vehicles with a local joint venture partner was not approved.
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As the dragon is keenly interested in investing, there is a need for more data to track whether the cleared proposals are being implemented and the actual investments that have materialised. Instead of originating from the mainland or Hong Kong, it is possible that such investments are also being routed through havens like Cayman Islands and Singapore. If so, there is a warrant for better tracking such investments as may not register in official databases. Shein made its Singapore arm its de facto holding company, a strategy known as ‘Singapore-washing’ that is being deployed by Chinese investors looking to take stakes in countries that are sensitive to mainland investments. But the Rupees 50,000 crore worth of cleared proposals unmistakably points to a step-up in scale and ambition to invest in India.