INDIA'S TRYST WITH DESTINY IN BRIDLING THE DRAGON SPITTING FIRE ON IT

India’s Tryst with Destiny in Bridling the Dragon Spitting Fire on it

The Indo-China Diplomacy:

The Wuhan and Mahabalipuram unofficial summits between the leaders of the world’s two of the most populous countries exuded confidence of building a new world order and held out prospects for regional co-operation and peaceful co-existence.  But, by its reckless aggression and belligerent bullying displayed against India, the modest gains made by the unofficial summits were soon decimated by the Chinese side once again proving that its political system thrives in deceit and treachery that it can never be trusted.  Conspiracy theories to callous negligence allegations against the Chinese establishment in its failure to contain the outbreak of Covid-19 notwithstanding, there are reports that China had used the global pandemic to its economic advantage by shoring up its exports and also by resorting to opportunistic takeover and acquisition of foreign companies operating in its own country and in other parts of the globe at highly discounted values.

The Dragon Spitting Fire on India:

Chinese investments in Indian corporate sector, especially in infrastructure, energy, technology start-ups and online marketing enterprises, has already crossed US$ 26 billions(1).  A report by the Confederation of Indian Industries submitted to the Central Government in the late February 2020 highlights that India’s dependency on China in terms of the share in India’s import stands at 45% for electronics; 32% for machinery (capital goods); 38% for organic chemicals; 57% for furniture, bedding etc.; 28% for fertilizers; 25% for automotive parts and 68% for active pharmaceutical ingredients.  Many of the Chinese investments into Indian Inc. have been often camouflaged and multi-layered and routed through unsuspecting countries with non-Chinese shareholders and directors exhibited by such investor companies thereby not displaying any sign of foreign direct investment flowing from China rendering the tracking of such investments almost difficult and complex. 

The first wake up call to India came when India’s premier housing finance company i.e. HDFC Limited announced in March 2020 the stock exchanges of the acquiring of a little more than 1 per cent of its stake by the Peoples Bank of China.  The brutal attacks by the Chinese army on June 16, 2020 in which 20 Indian soldiers guarding our Line of Actual Control in the Ladakh region were martyred had sent shock waves across our country.  These tell tale signs of diabolical designs by the Chinese establishment set alarm bells ringing in the Indian political circles.

India’s Responses to Bridle the Dragon:

In the wake of the Peoples Bank of China scaling up its investments in HDFC, the Indian regulators woke up to the possibility of China effecting opportunistic takeover/acquisition of Indian companies in the wake of the Covid-19 pandemic.  The Modi 2.0 Government introduced changes to its Foreign Direct Investment policy on 17.04.2020(2).  This Press Note stipulated that investments by an entity of a country which shares border with India or where the beneficial ownership of an investment into India is situated in or is a citizen of any such country, then, such investment can only be made with the approval by the Government of India and not under the automatic route.  It was also further stipulated that any change in the existing or future FDI in an Indian entity, directly or indirectly, resulting in the beneficial ownership falling within the scope of the above criteria would also require the approval of the Government.  Thus, the purport and intent of this Press Note was mainly aimed at curbing any opportunistic takeover of Indian entities by the Chinese investors, however, this policy may still fall short of achieving its intended objectives if the investments were routed through Hong Kong or by multi-layered camouflaged investments through countries which do not share borders with India.  Almost around the same time, the Securities and Exchange Board of India had also directed all the designated depository participants to refer for its approval all new applications received from foreign portfolio investors of the neighbouring countries specifically with a view to monitor investments coming in from China or its citizens from other countries to prevent opportunistic takeover when stock markets have been collapsing due to the Covid-19 global pandemic.  

The Modi 2.0 Government also notified that no global competitive tendering shall be any more mandatory for contracts valued less than Rs.200 crores(3), which besides aimed at promoting the domestic industry especially those under the MSME sector, also has an indirect effect of shutting out Chinese tenderers from participating in such tenders either alone or in a joint venture/consortium route with Indian entities.

In order to curb the rampant import of tyres from China, a notification was issued on June 12, 2020 restricting the import into India of all categories of the tyres named thereunder(4).  Although this notification did not directly name Chinese imports, the purport of the said notification was exclusively to prevent the dumping of Chinese tyres into India harming our domestic tyre manufacturers.  Similar, non-country specific restrictions (but, by product classification aimed at Chinese goods) have also been issued by India in the recent past.

Cancellation and Halting of Chinese Projects:

As a measure of economic retribution to the dastardly butchering of the Indian soldiers in the Ladakh border, the Indian Government rolled out calibrated responses to check the expansion of the economic footprint of Chinese in Indian Inc. which can harm the vital national interests.  The Indian Railways, Department of Telecom and several State Governments have recently either cancelled and/or halted the Chinese contracts and investments into India valued at several thousand crores of Rupees in the wake of the martyring of the unarmed Indian soldiers.  The Department of Telecom had also advised BSNL and other private telecom operators to reduce the dependence on the Chinese made telecom equipment and devices as there could be possibility of malware and sharing of critical Indian data and information by these manufacturers with the Chinese government.  The Ministry of Shipping had also directed all the ports in the country to hold up the clearing of consignments arriving from Chinese ports for exhaustive checks. All supplies to be made to Indian Government in e-tendering portals have been directed to designate clearly the country of origin of the goods or equipment to be supplied by the tenderers so as to keep a watch over the Chinese goods and products.  The boycott Chinese goods movement also picked up rapid pace in the country.  On June 29, 2020, the Ministry of Electronics and Information Technology had also issued a notification banning the usage of 59 Chinese apps including Tik Tok, Halo, etc. citing that these apps were prejudicial to the sovereignty, integrity of India, defence of India, security of state and public order(5).

Responses by the Government of India:

The Government of India is highly conscious of the balance of trade between the two countries more skewed in favour of China, with India being more dependent on import of Chinese goods and services leading to a huge trade deficit.  In order to reverse this trend and to bolster the indigenous industry, the Government of India has been advocating a multi-pronged approach to reduce the dependency on the Chinese goods, services and investments, (a) by promulgating notifications and orders which although do not specifically name China, but, are aimed at regulating or reducing the Chinese investments or goods into the country, as in the case of the recent change to the FDI policy, restriction on tyre imports, removal of global competitive tendering mandatory requirements for less than Rs.200 crores valued projects etc.; (b) by directly excluding Chinese investments as in the case of sensitive telecommunication equipment and mobile apps; (c) by promoting self reliance through ‘Make in India’, ‘Atma Nirbaar’ and ‘Vocal for Local’ initiatives aimed at homegrown technology and expertise; (d) imposition of additional tariffs and anti-dumping duty on Chinese imports.  Although the measures intended as above may not be able to overnight reduce the dependency on the Chinese goods and component, yet, in the long run, our country may be able to shake off the China dependency syndrome and move towards self-reliance vis-à-vis a neighbor with global dominance tendency and ruthless belligerency.

End Notes:-

(1)  Krishnan, Ananth, ‘Following the Money: China Inc.’s Growing Stake in India-China Relations’, Brookings Impact Series 032020-01, March 2020, Brookings Institution India Centre.

(2)  Press Note No.3(2020 series) issued vide DPIIT F.No.5(5)/2020-FDI Policy dated April 17, 2020 issued by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce & Industry, Government of India.

(3)  Notification F.No.12/17/2019-PPD dated May 15, 2020 issued by the Ministry of Finance, Government of India.

(4)  Notification No.12/2015-2020 dated June 12, 2020 issued by the Ministry of Commerce & Industry, Government of India.

(5)  Press Note dated June 29, 2020 issued by the Ministry of Electronics and Information Technology, Government of India.