Centre tightens norms on business with ‘hostile countries’ China, Pakistan

The Centre has tightened economic security regulations by prohibiting direct participation of both domestic and overseas corporate entities having any “commercial arrangement” with hostile countries such as China and Pakistan, two people aware of the matter said on Wednesday, adding that this has been communicated to all states.

The government has already amended its July 2020 order, making prior screening and registration mandatory for all those bidders who have any commercial arrangement with entities of countries that share a land border with India, they said requesting anonymity. Without naming any particular country, the government on July 23, 2020 restricted purchases for public projects from companies in countries that share a land border with India, citing national security.

The Union government has recently sent a missive to all states, directing them to seek approval before having any business relationship with hostile neighbouring countries due to increased security concerns, they said.

The communication has been sent to all chief secretaries recently after it was noticed that some private firms located in certain states were trying to engage Chinese contractors in infrastructure projects, one of them said. The chief secretary is often the top bureaucrat and principal executive officer in a state.

The decision was taken on the basis of security inputs received from agencies much before the October 7 terror attack in Israel, a second person said. Certain private infrastructure projects in some states are currently stuck due to this reason, he added. Mint, HT’s sister publication, on October 8 published that in want of Indian visas, executives of China’s BYD Auto Co Ltd had to meet private Indian firms’ executives in neighbouring countries such as Nepal and Sri Lanka.

On July 23, 2020, India restricted purchases for public projects, including those being developed as public-private partnerships, from companies in countries that share a land border with it due to security concerns. It was a retaliatory action against Chinese aggression on Indian boarders, which followed a DPIIT notification of April 2020 removing Chinese investments from the so-called automatic approval route fearing a takeover of Indian firms at a time when the country was fighting against the Covid-19 pandemic.

India had also reacted to Chinese aggression in eastern Ladakh in June that year in which 20 Indian soldiers and an unknown number of Chinese soldiers were killed. On June 29, 2020 the Narendra Modi government announced a ban on 59, mostly Chinese, mobile applications such as TikTok, UC Browser and WeChat, citing concerns that these are prejudicial to the sovereignty of India, defence of India, security of state and public order. Later, many other Chinese firms were included in the list.

The latest order will bar even indirect Chinese participation in strategic sectors such as power, petroleum, coal and telecom.

In order to check the influx of cheaper Chinese products, the government also took both offensive and defensive economic measures such as anti-dumping duties have been imposed on various goods originating from China, the Make in India campaign and the production-linked initiative (PLI) scheme for over a dozen sectors, the second person said.

Mint reported on 7 June this year that India has approved less than a quarter of the total FDI applications from China since April 2020. Also, in October 2020, India’s home ministry raised concerns about potentially sensitive investments in critical sectors from “certain countries”, given the blurred ownership lines between state-owned and privately held firms in China, the report said.