Chinese investment faces government scrutiny

2021-01-07 04:12:47

NEW DELHI: B2B e-commerce startup Udaan’s fresh fund-raise from Chinese player Tencent is set to face intense government scrutiny as it needs approval even if the technology conglomerate is among the smallest investors in the latest round of investment.
While company sources indicated that investment below a certain threshold does not require government approval, officials clarified that when it comes to neighbouring countries, the proposal will need a clearance even if the sector is under the automatic route for foreign direct investment (FDI). Besides, Udaan’s parent firm Trustroot Internet is registered in Singapore.
“We will have it checked but if the money has flowed into the company without government approval then it is a violation of the FDI norms. We have received proposals for even one share transfer involving entities from neighbouring countries,” said a government source.
The government is keen to ensure that companies do not float multiple layers or route funds via a third country to circumvent the new regulations.
In April, the government had made changes to the FDI policy to scan all investments from neighbouring countries with an eye on Chinese inflows that had begun to dominate certain sectors, especially those related to technology.
At that time, the press note from the department for promotion of industry and internal trade (DPIIT) had not mentioned any threshold and had said that a company with “significant beneficial ownership” by entities from the neighbouring countries will need approval.
The government is yet to define “significant beneficial ownership” amid a debate on whether the threshold should be 10% as is the case under the Companies Act, or 25% provided under FEMA.
Recent media reports had suggested that over a hundred proposals involving Chinese entities were awaiting a green light from the government.
Under the current regime, once a company signs a term sheet, it then files a Foreign Currency-Gross Provisional Return form with the Reserve Bank of India, which then scrutinises the case.

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