The completion of the disengagement process of Indian and Chinese troops in eastern Ladakh has had some effect on the corridors of power in Lutyens Delhi, as a TOI report suggests, with the government beginning to approve FDI proposals from China after a gap of nearly ten months.
In April of 2020, the government had amended the foreign exchange management (FEMA) act to forbid FDI in India, including via the ‘automatic route’, with immediate neighbours. This move was primarily aimed at blocking FDI from China after bloody clashes in India’s Galwan valley had led to casualties and a rapid escalation in tensions between the two nuclear-armed neighbours.
According to the report, while large deals will be cleared at a later stage with detailed scrutiny, smaller transactions have been cleared for the past few weeks. A committee has been formed comprising officials of home, commerce and external affairs ministries and Niti Aayog.
Entrackr’s immediate queries to the above ministries and Niti Aayog didn’t elicit any response. We will update the story in case they respond.
This gradual easing of tensions and FDI proposals from China is a good sign for the Indian startup ecosystem that receives a significant chunk of risk capital from Chinese venture capital firms and strategic investors. According to Entrackr’s sources, over three dozens late-stage deals had fallen through as a result of the amendment made in the FEMA act last year.
It’s worth noting that some companies, including Gaana, Udaan and Practo, have received FDI from China since last April. While Tencent Europe invested in Gaana through the debt route, it invested in Udaan and Practo’s holding entities that are based in Singapore.
“The easing of restrictions in FDI coming from China was likely after the reduction of tension and forces from both sides in the Ladakh region. It’s a welcome move and will help regain the confidence of Chinese investors in India. However, medium and small Chinese investors would remain cautious until they get a clear and stable picture on regulations,” said a source who advises Chinese investors on India’s regulations.
While the government’s latest move on FDI approvals from China seems to offer partial relief in a phased manner, several companies in the digital space including PolicyBazaar, Koo and Paytm are looking for buyers to offer complete or partial exits to their Chinese stakeholders.