View: Can growing anti-China sentiments favour Indian overseas direct investment?


The COVID pandemic has upsurged anti-China sentiments worldwide. Despite China’s robust foothold in Factory-Asia’s manufacturing supply chain, many countries are now thinking of developing an alternative supply chain base outside of China.

China shares warm investment relations with several countries. However, its predatory trade practices and related trade-weaponization have made a serious backfire internationally, and subsequently, the current COVID pandemic expedites this process. Throughout the continuing public health crisis, apprehensions are raised over foreign direct investments (FDIs) aiming at strategic sectors, particularly those from Chinese state-owned corporations. Countries have adopted rigorous foreign investment screening mechanisms to protect the state-interest related to foreign acquisitions of strategic sectors. In March 2020, Australia proclaimed temporary changes to its foreign investment review framework. European Commission too issued guidelines to member states to ratify rigorous foreign investment screening mechanisms. In Apr 2020, India also had amended the Consolidated Foreign Direct Investment Policy, 2017, to prevent anticipated avaricious acquisitions of Indian companies by Chinese corporations.

The growing concerns of a hostile takeover by Chinese firms have generated a negative sentiment against Chinese investments globally. The negative sentiment against Chinese investment has unfolded more opportunist platform for Indian investors abroad. Coherent policy support is the need of the hour for these investments.

Outward FDI (OFDI) by Indian companies underwent noteworthy and tremendous changes concerning its magnitude, geographical unfold, and sectoral composition. Indian companies have considerably endowed in joint ventures (JVs) and whole-owned subsidiaries (WOS) primarily through mergers and acquisitions (M&A).

The last decade witnessed a palpable shift in Overseas Investment Destination (OID), where developed countries became the preferred destination for Indian companies to invest. In 2019-20, countries such as Singapore, the US, the UK, Mauritius, and the Netherlands accounted for nearly 70 per cent of Indian overseas investments. Most of the assets are made in equity loans to subsidiaries/affiliated enterprises. Business services, manufacturing, construction, electricity, gas & water community, and restaurants & hotels are prominent sectors of these OIDs, where young Indian firms are inclined to invest in the service sector, while older firms towards manufacturing and others.

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During the Pandemic, India Inc’s outward foreign direct investment (OFDI) dropped to US$ 13.5 billion in the last eight months (May 2020– December 2020) of 2020–21 against US$ 21.2 billion for the corresponding period in 2019–20. Destination-wise, the US topped the list by attracting $ 2119.8 million, followed by Mauritius ($ 2081.6 million), Singapore ($ 1499.8 million), the UK ($ 1103.5 million), the Netherlands ($ 850.2 million), UAE ($344.5 million), and British Virgin Islands ($ 332.6 million) during April -December 2020.

In 2019-20, India became the second-largest FDI source in the UK, where India invested in 120 projects and created 5,429 new jobs. According to the Confederation of Indian Industry (CII), the US is a preferred investment destination for Indian companies, making a substantial contribution to supporting native jobs. In May 2020, Indian companies tangibly endowed around US$ 22 billion value of OFDI in the US. They created 125.000 direct jobs in all 50 states. The contribution of Indian companies included US$ 175 million towards corporate social responsibility (CSR), which they have contributed to local communities through their CSR initiatives like supporting students, organizing special skill and training programs, and approximately US$ 900 million on R&D. Amid the deadly COVID pandemic, collaborations in R&D of drug manufacturing have initiated greater opportunities for India with the US, and the UK. It is opening further overseas investment avenues for Indian Pharma companies.

India cannot hope to compete for dollar-for-dollar with Chinese spending power. Nevertheless, the COVID pandemic has shown a unique growth-opportunity for Indian investors, which requires a dynamic policy backup to create an “enabling environment” for higher investment flows. According to the Department of Economic Affairs, GoI, most bilateral investment treaties (BITs) with the EU nations, the UK, ASEAN, African, and other Asian countries were terminated in March 2017. Under the changing geopolitical international scenario, comprehensive BITs are to be negotiated further along with the ongoing initiations of signing trade agreements with the US, the UK, and EU nations.


(Anusree Paul is Trade Economist and Associate Professor in BML Munjal University, Haryana. Views are personal.)





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