India plans stricter check on FPIs from China and Hong kong – Burning Issues – Free PDF

• India is contemplating new restraints on foreign portfolio investments from China and Hong Kong after making government authorisation obligatory for any FDI from seven countries it shares land borders with.

• PEOPLE’S BANK OF CHINA (PBOC) RAISED ITS STAKE TO 1.01% FROM 0.8%, HDFC SAID. THE STAKE COMPRISES 17.49 MILLION SHARES OF THE MORTGAGE LENDER
•  The Indian finance ministry is in consultations with the commerce and industry ministry, SEBI and RBI on the planned structure after there were fears in New Delhi when China’s central bank increased its stake in HDFC.

FPI IS HOT MONEY AND CHINA COULD WITHDRAW ANY TIME

• In comparison to FDI, which is a long-term and stable source of funding, FPI is deemed hot money invested in listed shares that are simpler to liquidate and leave.
• The fear is that Chinese firms could secure stakes in strategically vital organisations at a time when stock prices are unpredictable.

SEVERE KYV NORMS

•  FPIs from China and Hong Kong may need to go more severe know your customer (KYC) norms at the time of registration and separate mechanisms could be put in place to ensure government clearance for investments in listed entities.

DATA COLLECTION HAS STARTED

•  “The government and market regulator have already begun collecting details on Chinese investments and ultimate beneficial owners of FPIs based in China through Sebi, and this additional data gathering is aimed to create barriers for Chinese investors,”

INDIA PLANS TO BECOME THE “WORLD FACTORY”

•  For decades, China has been dubbed as the ‘factory of the world’, due to its technically advanced manufacturing units, attractive policies for foreign investors and above all, cheap land and labour.
• However, industry experts suggest that labour salaries in China are about three times as higher as in India.
• The entry-level salaries for workers in India usually start between INR 12,000 and INR 15,000, while in China the salaries as high as three times these prices.
• India also offers quite fewer costs of operations, modern infrastructure capabilities, special economic zones (SEZs) that attract companies for their duty-free exports and other benefits such as incentives to boost domestic manufacturing, and several business-friendly policies.

• A report published in February 2020 by UBS, a financial services company based in Switzerland, said that “given India’s competitive advantage in terms of land and labour availability, exports have always been a big hope historically but it is now seeing a turn as global manufacturers long-settled in China are looking to diversify their manufacturing base. India has scale advantage and key success factors locally are also improving.”

ISSUES FACED BY INDIA

• “India is a democracy and a federal one at that, which means that laws differ from province to province, making things difficult for potential investors.”
• Competition from Vietnam and Bangladesh
• “India has many hurdles to overcome, from reskilling workers and ensuring power supply stability, to adding deep seaports and tax breaks. Critically, given the stiff competition, speed is key if India is to capitalise on the supply chains moving out of China”

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