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Foreign Direct Investment: A New Way

Foreign Direct Investment is one of the major economy boosters in India. Foreign companies directly invest in fast-growing Indian businesses and benefit from the cheaper expenditure in India.


Amidst the COVID-19 lockdown, the Government of India passed an order that would protect Indian companies from such foreign investments. The government decided to tighten the rules of investment from countries sharing a land border with India so that the budding Indian companies do not fall prey to foreign business giants.


Before the new norms were introduced, foreign companies could directly invest and take over new and small Indian businesses. With these new rules, any foreign company that wishes to invest in India must be reviewed by the government, only after the approval only, will they be allowed to invest. For existing or future FDIs, any transfer of beneficial ownership, involving a resident of a neighboring country, the procedure of sanction has to go through the government approval route.


The government reviewed its FDI policy for “curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic”.


In simpler terms, this order was passed to stop China, the economic superpower, to profit from vulnerable Indian companies during the uncertain times of the coronavirus lockdown.


In many ways, these new laws seem like the need of the hour, but they are also subjected to debate. These laws will help Indian companies to flourish in their business and grow larger, reinstating the “Make in India” and “Vocal for Local” motto. The government has passed several orders and schemes recently for small scale local businesses to bloom. This decision has been called “timely” by several scholars as it prevents takeover from Chinese companies, which would ultimately benefit them more than India. However, Biswajit Dhar, a professor of economics at Jawaharlal Nehru University said that fear of acquisition of companies is from everywhere and not just China, which is also completely true.


Beijing responded to these newly formulated laws and slammed them as “racist” and told that the laws violate the World Trade Organisation’s principle of non-discrimination. In contrast, officials said that China had adopted policies and restricted the access of foreign investors in sectors such as telecom, media, and financial services.


This move by India came after similar regulations that were introduced in countries such as Australia, Germany, and the Czech Republic in recent months. Taking such measures is essential as it is possible for China, in these powerless times which may take over trade monopoly.


India’s renewed FDI policies do not violate the World Trade Organisation’s principles. Countries are allowed to make such changes when national security is at stake. Till December 2019, Chinese investments in India crossed $8 billion.


Questions regarding this change were raised about how small businesses were supposed to bloom without investments from bigger companies, but with the stimulus package announced by the ministry of finance, MSMEs (Micro, Small and Medium Enterprises) can take collateral-free loans directly from the government and do not have to depend and wait upon foreign investment. This will act as initial seed money for small companies that have zero cash-flow due to the lockdown.


With these new policies and laws being adopted, India can truly win the battle against COVID-19 without suffering any damage whatsoever.


REFERENCES:

  1. https://timesofindia.indiatimes.com/business/india-business/changes-in-fdi-rules-dont-violate-treaties-india-to-china/articleshow/75283196.cms

  2. https://www.livemint.com/

  3. https://www.thehindu.com/business/Economy/coronavirus-package-how-will-the-covid-19-relief-for-msmes-help/article31603575.ece

  4. https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/softbank-doubles-buyback-plans-while-jack-ma-leaves-board/articleshow/75797022.cms?utm_source=ETMyNews&utm_medium=ASMN&utm_campaign=AL1&utm_content=9

ABOUT THE AUTHOR

D. V. Navya Nandini, 1st year BBA LL.B (Honours) from Gitam School of Law

Editor: Vijayalakshmi Raju

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