Indian Government Implements Stricter Regulations On Business Deals With China And Pakistan

In a bid to bolster economic security, the Indian government has recently implemented stricter regulations barring business entities, both domestic and international, from engaging in "commercial arrangements" with countries deemed as hostile, including China and Pakistan. These measures have been communicated to all states across the nation. This comes as an extension of the government's previous move from July 2020, where they made it mandatory for bidders with commercial arrangements with countries sharing a land border with India to undergo prior screening and registration.

The July 2020 decision, while not explicitly naming specific countries, aimed to safeguard national security by limiting public project purchases from companies located in neighboring nations.

The Union government has issued directives to all states, urging them to seek approval before entering into business relationships with neighboring countries considered hostile. This decision was prompted by concerns over the security implications of private firms in certain states attempting to engage Chinese contractors for infrastructure projects, as reported by Hindustan Times. 

The government's decision to tighten economic security precedes the October 7 terror attack in Israel, based on security inputs received from relevant agencies. It has resulted in certain private infrastructure projects facing delays.

Notably, the move further restricts Chinese participation, whether direct or indirect, in strategic sectors like power, petroleum, coal, and telecom. These regulations align with a broader economic strategy aimed at reducing reliance on cheaper Chinese products, which includes anti-dumping duties on Chinese-origin goods, the Make in India campaign, and the production-linked initiative (PLI) scheme for various sectors.

Additionally, India has been cautious with foreign direct investment (FDI) applications from China, approving fewer than a quarter since April 2020. In October 2020, the Indian home ministry expressed concerns about sensitive investments in critical sectors originating from "certain countries," given the blurred lines between state-owned and privately held firms in China.