A key economic adviser to the Indian government has hinted that the country’s authorities are likely to step up monitoring of fund flows from Hong Kong, a media report from the country said.
The comments by Krishnamurthy Subramanian, which were reported by the Financial Express, come after the Indian government tightened foreign domestic investment (FDI) rules requiring all investments by entities based in neighbouring countries, including China, to be subject to its approval.
During an online Federation of Indian Chambers of Commerce & Industry (FICCI) conference on Wednesday, Subramanian was asked a question over whether indirect investments from China via Hong Kong would be subjected to the same stringent measures.
“Investments that are coming from across the border, from the country with which we have tensions right now, need to be scrutinised, and those include not just the direct but also indirect ones,” he responded.
The Express reported that it was not immediately clear if these curbs could be extended to foreign portfolio investors (FPIs) as well, saying the implications would be large if that were the case as there are 111 registered FPIs from Hong Kong and 16 from China.
Subraiman acknowledged that such curbs may impact funding for start-ups in the short-term.
But he was confident that the vacuum will be filled by investors, especially private equity funds, from other countries; and that tighter scrutiny will curb the diversion of Chinese investments via Hong Kong.
In April, the Indian government tightened its FDI policy to curb “opportunistic takeovers or acquisitions” of Indian companies that saw a massive crash in valuations after the Covid-19 pandemic struck.
The regulations targeted countries that share a land border with India – like Pakistan, Bangladesh, Myanmar, Nepal, and Bhutan – but were seemingly targeted at China because it has major investments in India.
A report published by Indian Council on Global Relations in March had estimated that China tech investors have put an estimated US$4 billion into Indian start-ups.
Over the five years ending March 2020, 18 of India’s 30 unicorns – privately held startup companies valued at over US$1 billion – are now Chinese-funded, it said.