India Tightens Economic Security Regulations On Business Deals With Hostile Neighbours China, Pakistan

The Central government has reportedly implemented stricter economic security regulations by prohibiting domestic and overseas corporate entities from engaging in any "commercial arrangement" with hostile countries like China and Pakistan, Hindustan Times reported citing people aware of the matter.

The Centre has also communicated the aforementioned directions to the states.

The government has already amended its July 2020 order to make prior screening and registration mandatory for bidders who have any commercial arrangement with entities from countries that share a land border with India.

Without explicitly naming any country, the Centre had on 23 July 2020 restricted purchases for public projects from companies in countries that share a land border with India, citing national security.

In a missive to all the states, the Centre has directed them to seek approval before entering into any business relationship with hostile neighbouring countries due to increased security concerns, HT reported citing the sources.

Following the reports that certain private firms located in specific states were attempting to engage Chinese contractors in infrastructure projects, the communication was sent to all chief secretaries.

The decision was reportedly made based on security inputs received from agencies much before the 7 October terror attack in Israel.

Certain private infrastructure projects in some states are currently stuck due to this reason, according to the source cited in the HT report.

According to the reports, executives from China's BYD Auto Co Ltd had to meet with Indian firms' executives in neighbouring countries like Nepal and Sri Lanka due to difficulties in obtaining Indian visas.

On 23 July 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.

In June of the same year, India also responded to Chinese aggression in eastern Ladakh, which resulted in the deaths of 20 Indian soldiers and an unknown number of Chinese soldiers.

On 29 June 2020, the Narendra Modi government banned 59 mobile applications, mostly Chinese, including 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 extends the restriction on Chinese indirect participation in strategic sectors such as power, petroleum, coal, and telecom.

Further, to address the issue of cheaper Chinese products flooding the market, the government has implemented various economic measures. These include imposing anti-dumping duties on goods originating from China, promoting the Make in India campaign, and introducing the production-linked initiative (PLI) scheme for multiple sectors.