Since the November 2015 launch of the automatic route for foreign direct investments under the ‘Make in India’ initiative, greenfield FDI flows to India increased substantially. FDI through the automatic route does not require approval from the Government of India. The eased FDI norms enabled India to become the 9th largest recipient of FDI flows in 2019.
One of the most notable impacts of the 100% automatic FDI route corresponds to China’s investments in India, particularly smartphone manufacturing and funding tech start-ups. The market share of China-based brands in India’s smartphone market was 71% in 2019, with Xiaomi as the top smartphone seller. As of March 2020, companies like Alibaba, Tencent etc., backed 18 of India’s 30 unicorns in tech-space.
Against this background, the Indian government banned FDI under the automatic route from economies sharing land borders with India in April 2020. East Asian economies of Mainland China and Hong Kong were subject to this new FDI rule. This move was preceded by the People’s Bank of China increasing its share in Housing Development Finance Corporation (HDFC) Limited, from 0.8% to 1.01% through open-market purchases. HDFC is India’s largest mortgage lender. The Indian government was concerned about China’s ‘hostile’ takeovers of pandemic induced financially stressed Indian companies. The subsequent India-China border skirmish and ban of 59 Chinese apps in India also strained the bilateral relations. Consequently, China’s share in greenfield investments to India has dipped in 2020, with Japan emerging as East Asia’s largest source of greenfield investments in India.
- Amid concerns of ‘hostile’ takeovers of pandemic induced financially stressed Indian companies, the Indian government banned automatic route FDI from border sharing economies in April 2020.
- The 2020 FDI ban encompassed investments from Mainland China and Hong Kong.
- China’s greenfield investments in India dipped in 2020, with Japan emerging as East Asia’s largest source of greenfield investments in India.
By Ammu GEORGE