NEW DELHI: Ahead of Prime Minister Narendra Modi’s first trip to China starting May 14, the home ministry is set to relax investment rules for companies based there, dismantling longstanding barriers but putting safeguards in place to address security concerns raised by India’s intelligence agencies.
All investment proposals will be decided within two months and so-called sensitive sectors will be clearly defined after an inter-ministerial consensus.
Over the years, the neighbours have shared a relationship that has swung between friendship and hostility, including armed conflict in 1962. While President Xi Jinping was among the first international leaders to visit India after Modi took over last year, there have been periodic reports of incursions by Chinese troops into India-held territory in the past few months.
But top government officials told DB that easing the rules was critical as India’s trade deficit of nearly $36 billion with China is unsustainable in the long run.
This needs to be mitigated by encouraging Chinese investments in manufacturing units and business entities in India, the officials said. This also fits in with the ‘Make in India’ manufacturing initiative of thei government. DB was the first to report on February 6 that the home ministry had been asked by the PMO to work on easing rules ahead of the visit. The intelligence agencies expressed concern over possible Chinese investment in telecom, power, space, information technology and other sectors.
Apart from drawing up a list of sectors, the government will also rework its declaration formats to ensure disclosure of the actual ownership pattern of a foreign company regardless of whether the investment is through the automatic or Foreign Investment Promotion Board route. It is being proposed that investments requiring FIPB approval in the ‘sensitive’ sectors should be scrutinised in a time-bound manner — 60 days. The FIPB should consult the home secretary while deciding on any proposal, “an official said.
The $20-billion investment promised by the Chinese President during his India visit last September seems to have been the prime reason behind the Indian initiative. China had said it would establish industrial parks in Gujarat and Maharashtra with an investment of $6.8 billion. Further, Reliance Communications signed two pacts worth $150 million each with China’s ZTE and Huawei Technologies for expansion of its 2G and 3G networks. Huawei announced in February it would invest $170 million in a research and development centre to develop software components in Bengaluru in an attempt to align with Make in India campaign.
“This would be Huawei’s biggest R&D centre outside China,” a senior government official pointed out.
SKEWED TRADE FIGURES
Though China is India’s largest trading partner with bilateral trade at $65.8 billion in 2013-14, this is skewed heavily in favour of the first country. Imports from China amount to about $51 billion. Foreign direct investment inflows from China have been insignificant. Between 2000 and January 2015, this amounted to $612 million, 0.25% of the total, putting China at 26th position in this respect.
Nearly 60% of FDI was in sectors such as metallurgy and automobiles while sectors such as industrial machinery, services and power got just 7%, 6% and 4% FDI, respectively, from China. The intelligence agencies flagged their concerns regarding FDI in sensitive and strategic sectors such as ports, airports, aviation, telecom, internet service providers, refining, hydrocarbon exploration, shipping, roads, pharmaceuticals and defence.
The agencies are also said to have pointed out that sectors such as power and telecom were increasingly relying on Chinese companies for the execution of projects and supply of low-cost equipment. The agencies estimate that about 65% of telecom equipment installed in India is of Chinese origin.
The agencies have also warned of dangers such as embedded malware in Chinese equipment as well as lack of transparency regarding the relationship of companies with the Chinese army and security establishment, officials told DB.