DPIIT’s Review of Curbs on Chinese Investments
- August 15, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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DPIIT’s Review of Curbs on Chinese Investments
Sub: Eco
Sec: External Sector
- Objective of the Curbs:
- The restrictions on Foreign Direct Investment (FDI) from China were introduced to prevent opportunistic takeovers of Indian firms, especially during vulnerable times.
- This policy was implemented through Press Note 3 in 2020, which mandated that investments from China and other countries sharing a land border with India would require government approval.
- Current Review:
- The Department for Promotion of Industry and Internal Trade (DPIIT) is considering a reassessment of these restrictions as part of an overall review of India’s FDI policy.
- Stakeholder consultations are ongoing, and a final decision has yet to be made.
- The review may include easing investment routes for Chinese companies as a strategy to boost Indian exports.
- Economic Survey 2023-24 Insights:
- The Economic Survey 2023-24 suggested that increasing FDI from China could be beneficial for India’s export growth.
- As the U.S. and Europe shift their sourcing away from China, it might be more effective to have Chinese companies invest in India and export products to these markets, rather than importing from China and re-exporting after adding minimal value.
- Strategic Considerations:
- The re-evaluation of these curbs is seen as a strategic move to leverage Chinese investments for enhancing India’s manufacturing capabilities and export competitiveness, especially in the context of shifting global trade dynamics.
Press Note 3 (2020)
Press Note 3 (2020) is a directive issued by the Government of India that introduced changes to the Foreign Direct Investment (FDI) policy, particularly concerning investments from countries that share land borders with India.
- Restrictions on FDI:
- Investments from countries that share a land border with India (e.g., China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan) now require government approval. This means that automatic routes for such investments are no longer applicable.
- Objective:
- The primary goal of these restrictions is to prevent opportunistic takeovers or acquisitions of Indian companies during times of economic vulnerability, such as the COVID-19 pandemic.
- Applicability:
- The policy applies to both direct and indirect investments. If an entity from a third country (which does not share a land border with India) has an investor from a neighboring country, that investment would also require government approval.
- Scope:
- These changes affect all sectors where FDI is allowed. However, the approval requirement specifically targets investments from entities or individuals from the countries listed.
- Rationale:
- The Indian government introduced this measure as a protective mechanism to safeguard Indian companies from potential foreign exploitation during a period of economic uncertainty.
In essence, Press Note 3 (2020) is a protective policy aimed at controlling and scrutinizing investments from neighbouring countries to safeguard national interests and economic sovereignty.
Legal vs. Beneficial Ownership:
- Legal Owner: The person or entity whose name is on the title or official documents of an asset (e.g., a property, bank account, or company shares).
- Beneficial Owner: The true owner who enjoys the benefits of ownership, such as income or control, even if the legal title is in another person’s name.
DPIIT
The Department for Promotion of Industry and Internal Trade (DPIIT) is a department under the Ministry of Commerce and Industry, Government of India.
- Establishment:
- DPIIT was initially established as the Department of Industrial Policy and Promotion (DIPP) in 1995 and was later renamed DPIIT in 2019.
- Primary Functions:
- Industrial Policy: Formulates and implements policies related to the growth and development of industries in India.
- Foreign Direct Investment (FDI): Oversees and manages FDI policies in various sectors of the economy, ensuring that the regulatory environment is conducive to foreign investments.
- Intellectual Property Rights (IPR): Handles the administration of IPR laws and promotes the protection and commercialization of intellectual property.
- Ease of Doing Business: Works towards improving India’s ranking in the World Bank’s Ease of Doing Business index by simplifying regulations and reducing bureaucratic hurdles.
- Startup India: Manages the Startup India initiative, which aims to build a robust ecosystem for nurturing innovation and startups in the country.