FDI curbs, border conflict likely to add further roadblocks for growing Chinese influence in Indian start-up ecosystem

Chinese investors have been making their presence felt in a big way in the Indian start-up ecosystem over the last few years. However, the recently amended FDI rules and the straining relationship following the recent border conflict between both the countries are likely to add roadblocks for Chinese investments in Indian start-ups, according to GlobalData, a leading data and analytics company.

With majority of the big companies in China being state-owned, acquisitions of/investments in distressed assets by these companies during Covid-19 pandemic are seen as a potential threat and politically motivated move. In view of this, India amended its FDI policy in April 2020, which mandates government approval for all investments from nations with which it shares boundaries.

Aurojyoti Bose, Lead Analyst at GlobalData, comments: “While the new law entails investments to be scrutinized and not necessarily stopped, this move is largely seen as a measure to curb Chinese investments and is likely to have a detrimental impact on start-up ecosystem for developing economies such as India given the fact that Chinese companies have traditionally been the lead investors in some of the key start-ups in India, which also enabled these start-ups to scale up.”

Some examples of successful China-backed start-ups include Byju, Ola, Paytm, Zomato, Swiggy, Delhivery, Dream 11, Hike, MakeMyTrip, Oyo, Quikr, Snapdeal, Uddan and Bigbasket. Hence, with the amended FDI regulation, the companies heavily backed by Chinese investments are in a state of uncertainty for capital raising.

Meanwhile, the Startup Association of India requested the Ministry of Commerce and Industry to review the amendment and sought start-ups raising money from existing Chinese investors to be kept out of the purview of this law.

However, irrespective of the outcome, Chinese investments are likely to be clamped down, at least for some time with the latest border dispute taking anti-China sentiments to a new high.

Bose concludes: “On the other hand, though China has been enhancing its prominence, American firms still continue to dominate the funding landscape in India and with the amended FDI regulation and recent escalation of border dispute, Indian start-ups are more likely to turn towards such non-Chinese investments.”