Should India Ban Chinese Investments? No, Say Experts

Can raising trade tariffs or banning Chinese investments bear fruit for India after the clash at Galwan Valley in Ladakh?

Can raising trade tariffs or banning Chinese investments bear fruit for India as the two countries reached a near war-like situation earlier this week? No, say experts whom BOOM spoke to, who argue that investments and trade should not be made a victim despite growing border tensions between the two countries that saw 20 Indian soldiers lose their lives and several injured in the Galwan valley.

According to a report by The Gateway House, 18 out of 30 unicorns have Chinese investors – including Flipkart, Ola, Oyo, Byju's. "One of the reasons Indian start-ups have catapulted to unicorn status may have been Chinese investments," said Amit Bhandari, Fellow, Energy and Environment Studies Programme, Gateway House, who co-authored the report.

The report also stated that 95 Indian startups being funded by Chinese Investment. "Chinese investors are one of the five big pools of capital for Indian start-ups, which is led by American investors like Sequoia and SoftBank," he added.

"Companies with Chinese investment are reposing confidence in the Indian market, which is good for the economy," said Manoj Kewalramani, Research Fellow-China Studies, The Takshashila Institution, about India's move of restricting Chinese trade and investments.

According to Kewalramani, Chinese investment is a good thing. "So for example, the investment in food companies like Zomato has also resulted in skill sharing, market expertise, expertise sharing of knowledge in their own market," he said.

He also added that rather than curbing Chinese investment, the more important point is who gets the ownership of the company that's been invested in, who sits on the board of directors, who makes the decisions in these organisations.

India is also planning to raise trade tariffs on its trade with China, following the same course USA took in its trade war with China by hiking their tariffs to 30 % ( from the current 25%) on the $250 bn Chinese goods; and hiked the planned tariffs on $300 bn imports to 15%.

Kewalramani doesn't think it is a good idea, since "India contributed to only 4 to 4.5% of China's overall export in 2018 so it won't be a big blow to the economy, not like it was when America tried to raise their tariffs."

A major part of Chinese imports consists of smartphones, electrical appliances, power plant inputs, fertilisers, auto components, finished steel products, iron and steel products and pharmaceutical ingredients among others.

"At the end of the day, the cost of raising tariffs will be borne by consumers, and I doubt this will deter actions on the boundaries. We want the consumer to have more spending power and this won't help. We need to look at this in a broader context." said Kewalramani.

The FDI policy had been tweaked on April 18, keeping in mind Chinese companies that would looking to do bargain-hunting in India during the current COVID-19 times.

This applies to the seven countries with which India shares its land border—China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan and Afghanistan— cannot come under the 'automatic route' and will be approved on a case-to-case basis.

But Kewalramani doesn't approve of this. He said, "This is insignificant in terms of decision-making in the broader context if the Government wants to review investments which are coming through these roots. They're going to slow down the process of this money coming in at a point in time where India needs capital, particularly after COVID."

He stressed on the need for reworking regulations regarding FDI, in a way which protects countries from takeovers, where you set a bar in terms of the amount of ownership rather than a blanket oversight over every investment, which will delay the process of investment, and therefore, the organisation's growth.

Highlights:
-Raising trade tariffs can impact the Indian consumer negatively.
-Chinese investment is fine as long as details like factors like ownership, chair on the board of directors, data management are controlled.
-One of the reasons a few Indian start-ups have catapulted to unicorn status is Chinese investments.

Catch the entire interview on YouTube or click on the link here.

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