India Within Its Rights to Protect Domestic Industry, No WTO Violation in FDI Decision: Experts

India Within Its Rights to Protect Domestic Industry, No WTO Violation in FDI Decision: Experts

India has all the right to protect its domestic industry in such a crisis situation, and making government approval mandatory for FDI from neighbouring countries is not a violation of norms of the World Trade Organisation (WTO), experts say.

The reaction followed after a Chinese embassy spokesperson said, India’s new norms for foreign direct investment (FDI) from its neighbouring countries violate the WTO’s principle of non-discrimination and are against the general trend of free trade.

“There is no agreement pertaining to FDI in the WTO. The WTO norms do not cover investments related issues, so India is well within its rights to take such a decision for its industry,” Biswajit Dhar, a professor of economics at Jawaharlal Nehru University, said.

He said there are provisions for investors only with regard to exports and imports such as local content requirements.

Explaining further, Dhar said a WTO member country can not impose the minimum local content requirements for certain countries as that would be violative of global trade norms.

“India on its own is liberalising FDI policy. Taking any decision to protect its industry does not cover under the WTO norms,” he added.

Sharing similar views, Professor at Indian Institute of Foreign Trade (IIFT) Rakesh Mohan Joshi said in such a crisis situation, India has to take the decision to protect its industry from takeovers and acquisitions.

“There are no violations of WTO norms in this,” he said.

An industry expert too said any country should not take advantage of this pandemic as domestic industries are facing severe credit flow issues due to lockdown on account of COVID-19 disease.

The government on Saturday made its prior approval mandatory for direct or indirect foreign investments from countries that share a land border with India to curb “opportunistic takeovers” of domestic firms following the COVID-19 pandemic, a move which will restrict FDI from China. Countries which share land borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.

Under the government route, the foreign investor has to take prior approval of the respective ministry/department. Through the automatic approval route, the investor just has to inform the RBI after the investment is made.

On this, Chinese embassy spokesperson Ji Rong said in a statement, “The additional barriers set by the Indian side for investors from specific countries violate WTO”s principle of non-discrimination, and go against the general trend of liberalisation and facilitation of trade and investment”.

Sumit Kochar, senior wealth and transaction advisor, Findoc Group, said, this policy move by the government has come as a combat effect after China’s central bank recently raised stake in Housing Development Finance Corporation (HDFC) to a little over 1 per cent, thereby picking stake in one of the biggest lenders whilst the stock is trading low.

“It may restrict Chinese investors from picking Indian companies at all times. The move may end up harming FDI inflows in future,” Kochar said.