Why Won’t India Readily Accept China’s FDI Interests?

20 Feb

China wants to fund a significant proportion of India’s infrastructure development over its course. India’s government, nervous about allowing its bordering nation to enter critical areas, such as telecom or power over security worries, however, has rejected previous attempts.

Yet past unsuccessful attempts have not discouraged the Chinese from making a concerted bid to enable its firms and labour force to undertake work in India. China’s involvement will see it improving India’s decaying rail, road and power infrastructure.

In the first week of this February, a Chinese firm submitted a five-year trade and economic planning cooperation plan to the Indian government. The offer involved this firm financing as much as 30% of the $1trillion imposed investment in infrastructure during the 12th Five-Year Plan (2012-17) i.e. around $300 billion. The record offer by any one country exceeds the funds contributed by Japan, which has traditionally financed some of India’s most grand projects. This attempt at overseas investment is a way of China deploying its trade surpluses effectively – it currently has more than $3.8 trillion in reserves, a rising figure owing to trade surpluses with other countries. Having already invested large sums in its own infrastructure, Beijing has been looking further afield.

The metropolis has been pouring funds into developing nations across the globe, with the likes of Pakistan, Sri Lanka, Nepal and even South Africa accepting influence for itself and business for its firms. However, China needs to be “identify sectors from where we can gain, such as software or IT, pharmacy, among others” an official stated.

India, however, is wary of enabling Chinese investment in sensitive areas such as the northeast and Kashmir with the home ministry already raising concerns with investment into the area. Indeed, the two countries share a turbulent past, having gone to war with one another in 1962 leaving unresolved border issues where tensions remain high. The home and defence ministries are anxious of Chinese investment for strategic and security reasons.

Accepting China’s interest of investing in India’s infrastructure is a matter needs to be addressed. Decades of substantial foreign direct investment has seen China’s economy flourish after its reform period, and could be an opportunity India’s official cannot afford to miss out on.

References:

Seth, D & Sharma, Y. (2014): “China Offers to Finance 30% of India’s Infrastructure Development Plan”. The Economic Times, 19 February 2014 [Online]. Available at: http://economictimes.indiatimes.com/news/economy/infrastructure/china-offers-to-finance-30-per-cent-of-indias-infrastructure-development-plan/articleshow/30697833.cms [Accessed 20th February 2014]

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