India tightens business regulations for 'hostile countries'
What's the story
To tighten economic security regulations amid national security concerns, the Centre has reportedly prohibited any domestic or international company having any commercial arrangement with hostile countries like China and Pakistan from "directly" participating in public projects.
The Centre has communicated the same to all states and directed them to seek approval before finalizing any business ties with hostile neighboring countries, reported the Hindustan Times, quoting anonymous sources.
Context
Why does this story matter?
The move is expected to check indirect Chinese involvement in strategic sectors like coal, petroleum, power, and telecom.
The government banned Chinese apps in the country after Indian and Chinese forces clashed in Galwan Valley in Ladakh in June 2020, resulting in the deaths of 20 Indian soldiers, making it the worst confrontation in 45 years.
Subsequently, the government prohibited purchases for public projects from companies in neighboring countries without naming any specific nation.
Details
Government mandates screening, registration for companies
The government recently amended its July 2020 order, making it mandatory for bidders who have commercial arrangements with countries that share a land border with India to register and undergo screening beforehand.
The tightened regulations have resulted in infrastructure projects by private entities in some states getting held up.
The blurred line between government and private ownership in China is a major concern, and the Ministry of Home Affairs flagged investments in critical sectors from "certain countries" in October 2020.
Details
Chinese company's officials met Indian counterparts in Nepal, Sri Lanka
This move comes after reports of attempts by private firms in some states to work with Chinese contractors on infrastructure projects.
Notably, China is a manufacturing hub and its companies specialize in producing cheaper goods, due to which Indian and other companies rely on them for cost-effectiveness.
Mint reported a few days ago that executives of China's BYD Auto seeking Indian visas met the executives of some private Indian companies in Nepal and Sri Lanka.
Insights
Government approved less than 25% FDI applications from China
To counter cheaper Chinese products flooding the Indian market, the government implemented offensive and defensive economic measures like anti-dumping duties on various goods of Chinese origin, the Make In India campaign, and the production-linked initiative (PLI) scheme for several sectors.
In June, Mint reported that the government approved less than a quarter of foreign direct investment (FDI) applications received from China since April 2020.