MSMEs hail govt’s move to block China, others from automatic FDI route; feared hostile takeovers

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Updated: Apr 20, 2020 4:52 PM

Credit and Finance for MSMEs: Alarmed by the acquisition of the stake in HDFC Bank by China's central bank, the government had revised the FDI policy last week.

FDI rule, FPI investment, SEBI, India changes rules of FDI in COVID-19 situation, coronavirus, HDFC, china reaction on India new FDI rule, WTO, against WTO ruleChina has slammed India for the policy change calling it a violation of the WTO’s principle of non-discrimination.

Credit and Finance for MSMEs: Indian MSMEs, which have been deeply affected by the Coronavirus pandemic with respect to their liquidity, workforce, and revenues, have welcomed the government’s decision to amend the FDI policy to block investments from companies based in countries sharing borders with India including China under the automatic route. This is particularly with respect to Chinese companies as MSMEs, already feeling vulnerable in the current scenario, feared hostile takeovers by them bypassing government scrutiny. However, with the revised policy, the government has made it mandatory for companies in China as well to take government approval before investing in Indian companies.

“Indian MSMEs are extremely vulnerable as the present crisis has resulted in a cash shortage. We were worried MSMEs could go for equity or debt investment and ultimately controlled by vested interests in China. There would have been an influx of Chinese capital in Indian MSMEs. However with FDI policy chance, now Chinese investments will be under the government’s eye,” Rajiv Chawla, Chairman at the MSME association — IamSMEofIndia told Financial Express Online. The association, which represented 5,000 MSMEs in India, had sent a letter to the Prime Minister’s Office last week highlighting that investment from Chinese companies and banks need to be checked.

Also read: Need for all-round package to put life back into MSMEs, suggests FICCI; lists measures for govt, RBI

This comes in the wake of China’s central bank People’s Bank of China acquiring 1.75 crore shares in India’s HDFC Bank, according to a disclosure to the stock exchanges by the bank. Alarmed by the acquisition of the stake by the Chinese bank, the government had revised the FDI policy last week. “This will ensure companies including MSMEs are not affected by Chinese investments. Indian companies should remain Indian. We don’t want any outside controlling interest in MSMEs, especially from China. Since India has the advantage to be a global manufacturing factory for the world in the future, it is imp for Indian companies and banks remain Indian,” said Chawla.

China, however, has slammed India for the policy change calling it a violation of the WTO’s principle of non-discrimination, IANS reported. Ji Rong, Chinese Embassy spokesperson in India in a statement added that India’s move also “go against the general trend of liberalization and facilitation of trade and investment. More importantly, they do not conform to the consensus of G20 leaders and trade ministers to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.”

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