China cries foul over India’s new FDI rules, says they are ‘against free and fair trade’

A flustered China on Monday criticised India’s decision to tighten foreign direct investment norms for investors from neighbouring nations, saying the new rules violate WTO principles of non-discrimination and are against free and fair trade. 

The government had on Saturday made prior approval mandatory for foreign investments from countries that share land border with India to curb “opportunistic takeovers” of domestic firms following the COVID-19 pandemic.

“The impact of the policy on Chinese investors is clear,” spokesperson of the Chinese embassy Ji Rong said in a statement. China hopes India will revise ‘discriminatory practices’, treat investments from different countries equally, the spokesperson said.

According to a statement issued by the Department for Promotion of Industry and Internal Trade (DPIIT), the government said that an entity of a country which shares a land border with India can invest only after receiving government approval.

“However, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the government route,” said the statement.

Currently, investment by foreign companies in India is allowed under two routes, either from the automatic route in which companies don’t have to take the approval from the government, or through the government route, in which the companies have to take the approval from the government of India. 

The new rules will also apply to the transfer of ownership of any existing or future FDI in an entity in India directly or indirectly, the DPIIT said. On the other hand, the already tight rules for citizens of Pakistan remain the same, and sectors such as defence, space, atomic energy and sectors continue to remain prohibited to them, it said.

Earlier this week, several west European countries including Germany, Italy and Spain tightened their foreign direct investment (FDI) rules to prevent Chinese firms from taking over their companies which are facing slumping sales due to coronavirus pandemic.

The existing FDI policy only allow Bangladesh and Pakistan through the government route in all sectors, but now the companies from China and other neighbouring countries will also have to take the government route.