New Delhi: Chinese investments in Indian startups have been hit by the changes in foreign direct investment (FDI) rules.

According to data from deals analysis firm Venture Intelligence, Chinese investors had invested $166 million in Indian startups between January and July compared with $197 million in the year-ago period.

Chinese investors had put in a total of $641 million in Indian startups last year.

Indian government has made its approval mandatory for investments from countries that share a land border with India.

The drop in investments follows the stricter government rules around foreign investments from neighbouring countries that came into force in April. The change was mainly aimed at restricting investments from China.

More clarity sought

The investment head of a large Chinese investor said he will not invest further in India until there is more clarity. He declined to be identified.

“Chinese investors who had been looking at companies in the consumer Internet space, as well as some elements of deep tech, wanted to close those deals as soon as possible,” said Siddarth Pai, founding partner of 3one4 Capital. 

However, Pai added that Chinese investors continue to remain excited about the India startup opportunity. 

“I don’t foresee their enthusiasm going away anytime in the future unless of course, there are political considerations that come into the picture from either side,” he said.

Given the regulatory uncertainty, some startups in India are saying no to Chinese investments. 

Awaits clearer scenario

Varun Saxena, the founder of homegrown short-video app Bolo Indya, said his company has decided not to take any Chinese investments till the regulatory scenario becomes clearer.

Even American and European investors who are investing in India are facing hurdles because several of them have raised some amount of money from Chinese firms.

The government hasn’t yet clarified on the thresholds that will be used to determine which investments need to go through an approval process. Many investments have been delayed due to this lack of clarity.

Chinese investors have played a significant role in funding Indian startups over the past few years.

Venture Intelligence’s data shows that they spend $1.34 billion and $1.38 billion on Indian startups in 2017 and 2018, respectively. 

Between 2019 and 2020, big-name startups like Udaan, Delhivery, Swiggy, BigBasket and Meesho have had funding rounds including Chinese companies like Tencent, Hillhouse Capital, Fosun Group, Tencent, Alibaba and Shunwei Capital.