Indian Prime Minister Narendra Modi welcomed Canadian investors with open arms at an investment promotion conference in Canada earlier this month. While New Delhi is trying to attract more investors from economies like Canada and the EU, it has not reduced its resistance to Chinese investments.

Following a series of abrupt restrictions that hammered Chinese investors’ confidence, the Indian government is reported to be further tightening rules on all Chinese investments.

The Times of India reported on Monday that the Indian government may soon issue guidelines that will put foreign direct investment proposals with even the smallest Chinese holding under government approval.

With the urgent need to attract foreign investment to boost the economy, India’s resistance to Chinese investors, the second-largest source of foreign direct investment (FDI) in the world, is clearly contrary to India’s own economic needs.

Although the pandemic in India is still raging, it is clear that the Indian government’s policy focus is shifting from disease prevention to promoting economic growth. If India introduces this restriction on Chinese investment, it will inevitably have serious effects on India’s economic recovery.

India’s investment has been falling. New investments in India plunged to a 16-year low in the June quarter, data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE) showed, according to media reports.

If India wants to achieve a high growth rate like China, it must rely on investment to drive it, not just consumption. India’s savings rate is also much lower than China’s, so it must rely on foreign investment. Therefore, from all aspects, India should be open to foreign investment.

From investment in infrastructure construction under the Belt & Road Initiative to the current industrial upgrading, China has shown willingness to make connections between some of its manufacturing industries and high-tech sectors with India in recent years. Chinese science and technology companies were also very optimistic about the Indian market, so investors in corresponding areas were confident as well.

However, the series of abrupt restrictions imposed by India this year have severely affected the confidence of Chinese investors. India’s bans on Chinese apps and restrictions on Chinese investment prompted some Chinese investors to abandon the game in India, and now even those who were watching from the sidelines are leaving.

Near the end of June, 59 Chinese apps were banned overnight by the Indian government. Later, India widened the ban to cover more Chinese companies. The abrupt bans have driven many Chinese companies out of the Indian market.

In the months after these sudden blows, some Chinese entrepreneurs have already changed their wait-and-see approach to the market and made decisive moves to leave. Some of them transferred their business to Southeast Asian or Middle East countries.

So if the Indian government really plans to conduct an overall review of any China-related foreign direct investment proposals, it would certainly accelerate the process. Chinese investors that may have already been hesitant about their plans in India may also decisively leave the market.

Affected by the COVID-19 pandemic, India is experiencing a serious economic contraction this year, and it’s questionable whether the Indian economy will recover next year.

Last week, the IMF estimated that its economy had contracted by a record 23.9 percent in the April-June quarter, and that it would shrink 10.3 percent this year in the wake of the coronavirus pandemic.

To stimulate economic growth, India needs foreign investment. China and India had promising cooperation prospects. If India stubbornly continues ruining the cooperation momentum that was built up over a long time, its economy will undoubtedly suffer incalculable losses.

Author: Liu Xiaoxue