200 Investment Proposals from China Wait for Security Clearance by Home Ministry

New investment policy is aimed at preventing hostile action amid pandemic.

About 200 investment proposals from China are awaiting security clearance from the Ministry of Home Affairs (MHA) after new rules were notified in April, making prior government approval mandatory for foreign direct investments (FDI) from countries which share a land border with India.

As FDI is allowed in non-critical sectors through the automatic route, earlier these proposals would have been cleared without the MHA’s nod. Prior government approval or security clearance from MHA was required for investments in critical sectors such as defence, media, telecommunication, satellites, private security agencies, civil aviation and mining and any investments from Pakistan and Bangladesh.

The Department for Promotion of Industry and Internal Trade (DPIIT) notified the new FDI policy on April 18, which said, “…an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.”

The revised FDI policy, a press statement from DPIIT said, is aimed at “curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic.”

A senior government official said that since April, after the new rules were notified, the Ministry has received around 200 applications for vetting.

“However, none of the proposals have been cleared so far. These agreements would have been in the pipeline for months and it is possible that many might withdraw due to the delay or stringent conditions put in place now,” said the official.

India and China have been engaged in a standoff along the Line of Actual Control (LAC) in Eastern Ladakh as there has been a massive buildup of Chinese troops since April-May. In a first in more than four decades, 20 Indian soldiers were killed on June 15 in violent clashes with the Chinese troops at Galwan Valley. Several rounds of diplomatic and military level talks have been held as India has demanded that status quo be restored in the border area.

On July 10, Chinese Ambassador Sun Weidong issued a video statement, saying “China has been India’s largest trading partner for many years in a row with cumulative investment in India exceeding $8 billion.”

India shares land borders with Pakistan, Afghanistan, China, Nepal, Bhutan, Bangladesh and Myanmar. Investors from countries that are not covered by revised FDI new policy only have to inform the Reserve Bank of India after the completion of a transaction rather than seek prior clearance from the administrative ministry.

Last week, the Centre amended the General Financial Rules, 2017, to enable imposition of restrictions on bidders from countries which share a land border with India in relation to public procurement for reasons of national security and other factors directly or indirectly related to the country’s defence.

In 2019, MHA informed the Lok Sabha that the framework for security clearance has been streamlined and the average time taken for security clearance has reduced from 104 days in 2014 to 60 days in 2019.

According to the MHA’s annual 2018-19 report, as many as 5,490 proposals related to security clearance were disposed from May 2014 to March 2019.