Blocking Chinese Investors In India Will Impact Paytm, Big Basket & Other Unicorns? Here’s The Truth

The Indian govt on Saturday tweaked the Foreign Direct Investment (FDI) policy, in an attempt to put a check and adhere the ‘opportunistic’ takeovers and acquisitions of Indian businesses by Chinese establishments, especially in times of this global pandemic.

By changing the FDI norms, the Indian govt banned investments through direct route from countries sharing a border with India. This means that now, these countries will have to first take permission from the Indian Govt for approval of acquisition and investments.

18 Indian Unicorns Funded by Chinese Cos

Most Indian start-ups depend on foreign venture capital funding in the absence of any Indian investors willing to commit large sums of money during the initial and loss making stages.

According to a study report, one of the main reasons behind China’s penetration into the Indian market, is the absence of major Indian venture investors for Indian start-ups.

China has created a prominent realm for itself in the India tech market, in the past five years through consistent venture investments in start-ups and online ecosystem.

Chinese tech investors have put an estimated $4 billion into Indian start-ups. Their impact can be calculated by the fact that 18 out of India’s 30 unicorns are funded majorly by Chinese investors.

Speaking of these unicorns, they will look for safeguards in their contracts to secure government approvals for further rounds of investments. 

Footprint of Chinese Investments in India

Tik Tok, owned by Chinese firm Bytedance, is now one of the most popular applications in India, while Xiaomi and Oppo have over 70% share in the smartphone market in India.

Chinese giants like Alibaba, ByteDance and Tencent have funded 92 Indian start-ups, including unicorns such as Paytm, Byju’s, Oyo and Ola.

The Alibaba Group has major investments in Paytm and BigBasket, although they are well-capitalized at the moment.

According to Paytm, its investments by existing investors like Alibaba will not be impacted by the new Foreign Exchange Management Act (FEMA) regulations.

Similarly, popular food delivery services such as Swiggy has received funding from various Chinese firms. Its rival Zomato too has raised money from Alibaba Group and Shunwei Capital.

How will this FDI Change Affect Indian Cos?

According to a law firm, while existing investors may find it easier to get approvals due to the surviving provisions of India-China trade agreement and not be affected much, the new investments from China will get highly affected by this change in laws.

All fresh investments from China will be severely impacted and subject to detailed scrutiny. In the last couple of years, several Chinese companies were setting up shop in India and again due to this change, the trend will reverse.