India's FDI clampdown: Only 3 Chinese FDI applications made the cut in FY23

After the border tussle at the Galwan Valley in Ladakh in 2020, India has slammed the doors shut on Chinese foreign direct investment (FDI). This is also applicable to Chinese nationals operating from Hong Kong, Taiwan, and other countries. And this is reflected in the FDI approval record over the past three years.

The Ministry of Commerce and Industry has given the green light to just three investment proposals from China or Chinese nationals in 2022–23 (FY23). This was revealed in response to an RTI application filed by Business Today.

Based on the available data, a staggering 58 FDI applications have been rejected by the department between FY21 and FY23. In the initial year of the pandemic FY21, 10 applications were rejected. The following year, rejections reached an all-time high of 33. In FY23, the figure decreased slightly, but still 15 applications were turned down by the department.

Clearly, the trend highlights the increasing scrutiny and cautious approach towards Chinese FDI in recent times. At present, there are 14 FDI applications pending with the department.

In 2020, the government made prior approval for foreign investments from countries sharing a land border with India mandatory. These countries are Pakistan, Bangladesh, Afghanistan, China, and few others. The government has been closely examining all investment proposals originating from these countries, especially China.

Though this rule applies to all neighbouring nations, its primary focus is to prevent any potential hostile takeover of domestic companies by Chinese investors. In fact, the market crashed big time post covid and many good companies were available for a song. In addition, the move was aimed at curtailing the presence of Chinese companies in India.

According to people familiar with the matter, the government is asking Chinese mobile phone manufacturers and automakers to include Indian equity partners with a majority stake. MG Motor India, the Indian arm of Shanghai-based SAIC Motor, has unveiled a strategy to "Indianise" its business over the next five years.

As part of this plan, the company aims to strengthen its local footprint, especially by sourcing as much as possible from the local market. In fact, JSW, led by Sajjan Jindal, is in discussion with MG Motors, exploring the possibility of acquiring a majority stake.