Amended FDI rules likely to affect China’s deepening influence in the Indian tech sector

The central government’s decision to impose stringent restrictions on investments from neighboring nations is likely to have implications for future investments, by VCFs (Venture Capital Funds) and the startup segment that had witnessed an unprecedented rise in Chinese investments over the last few years.

Chinese tech giants Tencent and Alibaba have emerged as one of the largest investors in the Indian startups in recent years. Some of the top Indian tech companies that have Chinese investors include Policy Bazaar, Swiggy, Hike, Ola, Byju’s, Dream11, MakeMyTrip, Paytm and others.

It is worth noting that on Saturday, India amended its FDI policy to curb the “opportunistic takeovers” of Indian corporate firms that are grappling with numerous challenges owing to the COVID-19 outbreak. India’s action follows similar steps taken by nations like Germany, Spain and Australia

Following the change in FDI norms by the Indian government, any fresh investment in these firms will now face additional scrutiny, which in turn, would increase the approval and transaction completion time.

According to a recent report by Mumbai-based foreign policy think tank ‘Gateway House: Indian Council on Global Relations’:

• China is most active in the Indian start-up space, investing around $4 billion into them.

• China is embedded in Indian society, the economy, and the technology ecosystem that influences it.

• It has penetrated the online ecosystem with its popular smartphones & their apps.

• Chinese investors are more concentrated in the sectors such as e-commerce, fintech, social media and logistics.

• More than half of India’s 30 Indian unicorns have Chinese investors. Notably, Unicorns are the startup companies with a value of more than $1 billion.

In addition to this, according to the India-China Economic and Cultural (ICEC) Council, Chinese-origin investors have invested about Rs 23,600 crore into Indian startups over the last three years.

It is worth noting that the Chinese investments in the tech sector hold immense implications for India’s diplomacy, trade strategy, and security. 

Earlier, SEBI also issued fresh communication to custodians seeking details of investments coming from China or via China into Indian stock markets.