Now, China Can’t Even Use Singapore Route to Push its FDIs into India

India is set to tighten the scrutiny of foreign direct investments (FDIs) from Singapore, amid growing apprehensions that cash-rich Chinese companies could route their investments through the island nation to bypass New Delhi’s stringent FDI policy for bordering countries.

Singapore replaced Mauritius as the largest source of FDI for India in FY19 and accounted for close to 30% of such inflows into equities in the last fiscal. Already, the customs officials have raised scrutiny of imports from China.

However, the government will likely step up vigil in such a manner that the flow of genuine FDI from Singapore isn’t upset in this process, sources told FE. While a formal proposal is yet to be floated for this purpose, informal deliberations have started in some quarters, one of the sources said. “The government is mindful of the fact that bona fide FDI from Singapore or others don’t get affected at all,” he added.

FDI from Hong Kong, often seen as a proxy for Beijing, too, is also expected to go under heightened scrutiny.

As the Covid-19 outbreak dragged down the valuations of domestic firms sharply, India on April 18 tightened its FDI policy to curb “opportunistic takeovers/acquisitions” of these companies, mainly by the Chinese, by stipulating that all such proposals from bordering nations would require government clearance. Importantly, the April notification also covers any transfer of investments or future FDI resulting in beneficial ownership falling with firms from the bordering nations, including China.

While the move was initiated in the wake of the pandemic, China’s recent border misadventure has hardened India’s resolve to curb both substandard imports and “opportunistic” investments from Beijing, directly or indirectly.

While FDI from China remained abysmally low and made up for just 0.5% ($2.3 billion) of the cumulative FDI inflows between April 2000 and March 2020, given the low valuations of Indian firms, such investments were expected to surge, especially in sensitive sectors. As of December 2019, China’s cumulative investments in India exceeded $8 billion, only 30% of which were FDI. In fact, at $4.4 billion, cumulative FDI inflows from Hong Kong were larger than from Beijing.

Also, according to a recent report by researchers Amit Bhandari and Aashna Agarwal, China has entered the Indian market through venture investments in start-ups and penetrated the online ecosystem with its popular smartphones and their applications. Chinese tech investors have put an estimated $4 billion into Indian start-ups. Over the five years ending March 2020, 18 of India’s 30 unicorns are now Chinese-funded. “TikTok, the video app, has 200 million subscribers and has overtaken YouTube in India. Alibaba, Tencent and ByteDance rival the US penetration of Facebook, Amazon and Google in India. Chinese smartphones like Oppo and Xiaomi lead the Indian market with an estimated 72% share, leaving Samsung and Apple behind.”

Source: FE