It makes a case for how greater FDI inflows from our northern not-so-neighbourly neighbour may help increase India’s integration with GVCs and boost India’s exports. It calls for India to find the right balance between importing goods and capital from China. The strategy is to reduce trade costs and attract, facilitate and retain greater foreign investment, particularly in India’s labour-intensive manufacturing sector.
The messaging is unmistakable: that a reassessment of policy measures that have been in place in India since early 2020 aimed at curbing inward FDI flows from China, may be in order.
Speaking in Parliament on Tuesday, Piyush Goyal clarified that there are no plans to reevaluate GoI’s position. Speaking earlier at a post-budget press conference, however, Nirmala Sitharaman flagged the Economic Survey’s views on FDI from China, clarifying that the screening process in place remains the route for processing inward FDI flows from that country.
Both the commerce and industry as well as finance ministers’ underlying point is that unfiltered FDI from China, with its accompanying national security and economic coercion concerns, is not viable in the prevailing geopolitical and geoeconomic context. That much is indisputable.Yet, as the survey indicates, a blanket shutdown of Chinese FDI and denial of visas to Chinese specialist technicians and technology workers won’t help us. It’ll probably even hurt us. India’s trade and trade deficit with China continue to grow. Complementary trade and investment flows could add momentum to Indian manufacturing output for onward export to global markets.India shouldn’t extend its FDI-related security blanket so wide that it effectively prohibits Chinese investments into the country. This will adversely affect our ‘China+1’ efforts. It’s worth noting that even without a catch-all security blanket, India will have to compete for the growing outward-bound Chinese FDI flows.
So, what can be done?
Screening: India doesn’t have a legal architecture supporting transparent and systematic domestic screening processes for foreign investment on security or related grounds. This needs to be taken up on a priority basis. It’ll instil confidence in the screening process and ensure that legitimate investments aren’t rejected on whimsical grounds.
A private member’s Bill introduced in Rajya Sabha a few years ago – Foreign Investment in Financial Services, Critical Infrastructure and Technology Affecting National Security (Regulation) Bill – is a rare example of an initiative on this front. GoI should review it.
Reviewing: The Economic Survey also provides a timely reminder that all our concerns on economic dealings with China are interrelated and must be dealt with accordingly. Whether it be curbs on FDI from China, our engagement with the Regional Comprehensive Economic Partnership (RCEP) mega-regional trade agreement, or our stance on the Investment Facilitation for Development initiative at WTO, our default positions cannot be to disengage and shut ourselves out.
Regular course-correction and innovative thinking are required to land at favourable economic territory in each setting. This can be achieved through a dynamic and carefully calibrated sectoral trade and investment policy with China, which recognises and responds to changing realities.
In her budget speech, Sitharaman mentioned that rules and regulations will be simplified to facilitate FDI. Given the number and complexity of factors, and political costs involved, there will be no easy decisions when taking a call on India’s future policy on FDI from China. Considering the jobs crisis in India, we can prioritise labour-intensive FDI, such as textiles and garments, where China has achieved global scale.
However, if there is an economic case for a rethink at any point, GoI shouldn’t hesitate to walk down that road. A mindset of recognising interdependencies rather than dependencies will be critical to this.
Inputs by Advaiyot Sharma