India ready to fight China at WTO, but won’t budge on FDI restrictions

India vs China flags

India is prepared to face the music at the planet Trade Organization (WTO) if China lodges a complaint against the former’s alleged “discriminatory” restrictions on Foreign Direct Investment (FDI) from the latter, a senior official has said.

 “China can little question drag India to the WTO for discriminating against it within the area of investment rules. But because the WTO’s dispute settlement system has been rendered dysfunctional by the US at the instant , India doesn’t face any real threat of immediate penalties,” said a government official.

Government filter Beijing had reacted strongly to India’s decision to form it mandatory for all investments from China, and 6 other countries with which India shares a land border, to be routed through the govt channel.

The Centre has said the move is important to stop hostile takeovers at a time when Covid-19 has made Indian entities vulnerable. Since India’s FDI policy ordinarily allows foreign investments during a sizable amount of sectors to flow in automatically, China said the extra scrutiny imposed on investments from just a couple of bordering countries violated the WTO’s principle of non-discrimination, and will be withdrawn.

China might not be wrong when it says that the FDI restrictions are in violation of WTO rules, a Delhi-based trade expert told BusinessLine. “The principle of non-discrimination in GATT (General Agreement on Tariffs and Trade) stipulates that a member shall not discriminate between like products from different trading partners.

Also, India cannot invoke the ‘security exception clause’ to justify the restrictions because it has clearly stated that the measures are to see hostile takeovers and, therefore, not for any security reasons,” the expert said.

Dysfunctional dispute mechanism

However, India needn’t worry about the WTO at the instant since the multilateral forum’s Appellate Body, its top-decision making body, isn’t functioning.

“While the dysfunctional dispute mechanism at the WTO is of concern for India and every one other members, during this particular matter, it suits us because we don’t need to worry about penalties,” the expert added.

The Department for Promotion of Industry and Internal Trade’s decision to return up with FDI restrictions followed submissions by investor groups to the Finance Ministry proposing that assets like prime land, ports and power plants should be shielded from predatory-buying by China, which has managed to guard its stock markets from crashing. that they had sought proper scrutiny of all purchases of /investments in Indian assets by Chinese state-owned vehicles or Chinese proxy state vehicles.