In the last five months, since India tweaked its foreign direct investment rule making it mandatory for Chinese investors to get government’s nod before investing, hundreds of proposals from China-based VCs are stuck in the country’s bureaucratic system.
The proposals that seek to back early to growth-stage Indian startups are either on hold or are being moved between various departments and ministries, local media Economic Times reported.
To maintain control over the capital inflow from China, the government is seeking additional information for many of these proposals, the report said. It further added that government officials are asking the concerned parties to fly down to India to answer queries, instead of talking over the phone or in a virtual meeting. Reportedly, an approval for an investment proposal can take up to three months.
The report said the government agencies are trying to do multi-level checks to establish if this money is coming from China.
During 2018 and 2019, Chinese investors poured almost USD 6 billion into the country’s burgeoning Internet industry. However capital from China has almost dried up since India’s Ministry of Commerce rolled out a new policy in April to block “opportunistic takeovers.” In a press note then, the Indian Government stated that “It has reviewed the extant foreign direct investment (FDI) policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic…and amended the FDI policy, 2017.”
Various Indian startups after having not received the funding from their Chinese backers due to the change in FDI policy are now looking at alternate options. Zomato raised USD 62 million from Temasek after it didn’t receive USD 50 million from Alibaba Group. Investment from China in Indian companies fell down from USD 1.23 billion in the first half (H1) of 2019 to USD 263 million across 15 deals in H1 2020.
Industry veterans do not expect the situation to improve until the geopolitical tension between the two countries scales down.