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FDI is permitted under two routes:
- The first, via the automatic mode where the companies do not needü an approval from the state and
- The second, through the government route, for which companiesü need clearance from the Centre.
- Officials said the earlier FDI policy via the government route was limited to Pakistan and Bangladesh only.
IMPACT OF SUCH A MOVE
- The move is expected to have a significant impact on investment by Chinese players like Alibaba, Tencent and Xiaomi in companies such as Paytm, Ola, Bigbasket, Byju’s, Dream11, MakeMyTrip and Swiggy for follow up funding.
- It is also expected to reduce the inflow of investments in new companies as well as the merger and acquisition scenario in the country.
IMPACT OF SUCH A MOVE
- China is most active in India in the start-up space.
- Gateway House in its research study on Chinese Investments in India has identified over 75 companies, with Chinese investors concentrated in e-commerce, fintech, media, social media, aggregation services and logistics.
- A majority – more than half – of India’s 30 Indian unicorns (start-ups with a valuation of over $1 billion) have a Chinese investor.
- A number of countries — ranging from the US, UK and Australia — have imposed curbs on the operation of Huawei, the Chinese telecom vendor, whose founder was allegedly involved with the PLA’s engineering corp.
- All FDI (foreign direct investment) proposals from Chinese entities have been put on hold as they await security clearance from the Ministry of Home Affairs.
- The Centre is vetting such proposals from China’s Great Wall Motors (GWM), petrochemical major Hengli and Foton China, according to officials aware of the development.
175 SUCH PROPOSALS ARE PENDING
- As many as 175 such proposals are pending for approvals,” a senior government official said.
- It is as per the new rules.
WHAT ALL IS BEING CHECKED?
- “The objective of the national security clearance is to evaluate potential threats, visible or embedded, in proposals received by the home ministry and to provide a national risk assessment. After a new FDI policy by the Department for Promotion of Industry and Internal Trade (DPIIT), a detailed review of the names of promoters, owners and directors are conducted despite a self-declaration.
- “Now, 17 sectors, including defence, telecom and pharmaceuticals, need government approval if any company from abroad wants to invest 10% or more. Inputs from financial intelligence units are taken into consideration in sectors which require government approvals,” an official said.
- The automobile sector is on the automatic approval route but any FDI from China needs government clearance.
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