By Sarosh Bana
It is China’s economic and military dominance that is inhibiting international reprisals against it on suspicions of being the originator of Covid-19, pursuing hegemonistic ambitions in the Indo-Pacific, and sponsoring volleys of hackings globally.
It is perhaps this clout that Beijing enjoys that has motivated India to partially relax its position on foreign direct investments (FDI) from its giant neighbour, when, at the start of the virus-induced lockdown early last year, it had subjected all Chinese FDI to mandatory government screening. The objective behind such curbs had been to block opportunistic takeovers of Indian companies.
With India’s stock market indices now scaling new highs, the government believes it can let down its guard a bit in allowing Chinese FDI up to 25 per cent in equity under the automatic route.
India’s apprehension about the devious buyouts by China were not unique. Similar concerns were being expressed by other economies, as the United States, Australia, Canada and Germany that too had adopted measures to thwart such takeover attempts. They had evoked special national security laws for screening investment inflows. India lacked such legislation, and thus could not differentiate between investments that impinged on national security and those that did not.
Shortly after India went into lockdown in March last year, the People’s Bank of China made a series of share purchases in HDFC, India’s largest mortgage provider. It was the disclosure requirements of the stock exchange that publicised this incidence when the Chinese bank’s total shareholding exceeded one per cent of HDFC’s equity.
This set off the alarm bells in India, with the Department for Promotion of Industry and Internal Trade (DPIIT), which functions under the Commerce ministry, articulating its intent at curbing “opportunistic takeovers/acquisitions of Indian companies”. It mandated government approval for investments from countries that shared land borders with India, or where the beneficial owner of an investment into India is located, or is a citizen of any such country. As such approvals were already required for Pakistan and Bangladesh, and since India’s other neighbours, like Afghanistan, Bhutan, Nepal and Myanmar, are not significant foreign investors, there was little doubt that the departmental move was targeted primarily at investors from China.
India has had to be wary of China’s furtive moves of raising its profile across the country through various means. Such vigilance has necessarily grown, considering that 50,000 to 60,000 troops of the People’s Liberation Army (PLA) are already occupying a 1,000-sq km territory within India’s borders in eastern Ladakh since May last year.
Australia’s Foreign Acquisitions and Takeovers Act, 1975, for instance, empowers the treasurer to stall specific foreign acquisitions on grounds of national security. The treasurer acts on advise by a non-statutory Foreign Investment Review Board, which assesses the implications on national interest. The treasurer is required to give his or her decision within 30 days, extendable by another 90 days, and if he or she rejects any foreign acquisition, he or she has to issue an order in writing that must be registered on the Federal Register of Legislation.
The Investment Canada Act of 1985 similarly empowers a minister to reject certain foreign acquisitions, under advice from the director of investments. The minister has 45 days to decide, extendable by another 30 days, and if he or she does not approve or reject the acquisition within that period, the acquisition is considered automatically approved.
It is felt that India requires such a dedicated statute that enables authorities to screen inward investments on grounds of national security.
In February, a China-linked group called RedEcho had targeted as many as 10 entities under India’s power grid as well as two maritime ports. Information about the Chinese malware compromising these entities was first given by Recorded Future, a privately held cybersecurity company headquartered in Somerville, Massachusetts, which said it had notified India’s Computer Emergency Response Team (CERT) on this issue.
Indian authorities hurriedly blocked attempts to penetrate the country’s electrical sector. Beijing, however, denied any involvement, its Foreign Ministry spokesman Wang Wenbin maintaining, “Without any proof, slandering a specific side is irresponsible behavior and an ill-intentioned one.” Intrusions into India’s critical infrastructure have been occurring since at least the middle of last year.
In fact, when the country’s financial capital of Mumbai, a metropolis with a population of 24 million, collapsed last October under an unprecedented power outage that lasted several hours, the state and the central governments argued over whether the crisis had been caused by a Chinese cyberattack.
Although the Union government discounted allegations of sabotage and blamed the outage on “human error”, Nitin Raut, the energy minister of the state of Maharashtra of which Mumbai is the capital, informed the legislature that the massive power outage was very likely the result of cyber sabotage. It was widely suspected that the hacking had been perpetrated from China. The minister noted that an investigation into the grid failure established that hacking attempts had been made from IP addresses traced to “foreign” companies to log in to the power network and nearly “14 Trojan horses” carrying malware had infiltrated the state’s computerised electric system. He added that eight gigabyte of unaccounted foreign data could have been transferred to the main electricity board, with black-listed IP addresses having attempted to log-in to the state electricity board’s servers.
The power outage had brought the financial, commercial and banking powerhouse of the country to a complete standstill for several hours, crippling banks, offices, stock markets, transport networks and households.
