Recently the news became very famous that India changed its Foreign Direct Investment Policy. This move came after China bought a 1% stake in HDFC limited in India. Like RBI in India, the People’s Bank of China has bought the stake in HDFC limited. HDFC Limited is a housing finance institute. It gives loans to people to buy homes or to real estate companies to build houses. HDFC Bank is promoted by HDFC Limited. But, why China wants to buy our company stakes?
India is the economy is in its downfall state. Not only India, but the entire world is also now in an economic crisis. All the stakes of the companies are now going low. Now, China is finding this opportunity to enter the market by buying stakes in all the major companies all over the world and get sell them when those companies are in profits. But, what will happen if China does so? Let us understand this.
Now one share of HDFC may cost around 1000/-. As India is in crisis, Indians cannot buy HDFC shares. Now, China is using this situation and buying a 1% share in the company. Because of this, the company shares which was 1000/- will now increase and people will invest because now the company is in profits. So, the share value which is 1000/- will now become 1 lakh. Now, China understands this and sells all the shares each for 1 lakh. Now, the company will go into losses as the share value falls down. Indians who bought the share value for 1000/- will now go into loss. Further, when China’s investment increases in the Indian banks, it will influence the involvement of China in the Indian banking system.
So, the Indian government wants to avoid this and thus, made some amendments to the Foreign Direct Investment Policy.
According to the new SEBI policy, the country which shares borders with India should now take the permission of the Union government to invest in the country. Apart from China, Hongkong is also looking to invest in Indian companies. So, it can be considered as one of the best decisions.
But, there is some negative impact because of this. Various mobile manufacturing companies are establishing their manufacturing plants in India under the Make in India initiative. Now, because of this change in policy China may take some retaliating decisions. Already, the Chinese Foreign Affairs spoke person has stated that India has taken a “discriminatory” decision and violating WTO (World Trade Organisation) principles