One major revelation amid the COVID-19 pandemic has been that India lacks a legislative framework to deal with national security issues related to foreign investment as well as international trade. The absence of this legislative framework could pose daunting challenges for India under international law. To understand this, let us take the example of the recent amendment to the foreign direct investment (FDI) policy.
With an eye on curbing opportunistic takeovers by Chinese companies of Indian businesses weakened due to COVID-19, India amended the FDI policy subjecting investments from countries sharing ‘land border’ with India to stricter controls. As per the new policy, investment from these countries will be screened under the approval route and are disallowed under the automatic route. Curiously, the policy doesn’t mention national security as the central reason for this alteration. Translating this policy into law, the Indian government will screen Chinese FDI under the Foreign Exchange Management Act (FEMA), which is primarily an exchange control law.