Have start-up investments in India hit the great FDI wall?

///Have start-up investments in India hit the great FDI wall?

Have start-up investments in India hit the great FDI wall?

by Dr Param Shah
Have Startup Investments hit the Great FDI wall

Despite the restrictions on Chinese FDI into India, there is every potential for the start-up sectors in the country to grow and develop.

Three out of every five Indian Unicorns are funded by Chinese investors. Many Indian start-ups too have large investments from Chinese investors. However, Chinese investments in Indian companies started to come under the scanner in the recent weeks. So what does this mean for the Indian start-up sector?

Related stories: Impact of Covid-19 on the Indian start-up ecosystem

Rebooting the Indian start-up ecosystem to the new normal

Have Startup Investments hit the Great FDI wallIn the circular dated April 17, 2020, the Indian government has amended the extant FDI policy to curb the opportunistic takeovers or acquisitions of the Indian organisations because of the current Covid-19 pandemic. The notification stipulates that any country that has a land border with the country can only invest through the government route. India has land borders with countries such as China, Bhutan, Nepal, Afghanistan, Pakistan, and Bangladesh. Earlier, only those organisations that were established in Bangladesh and Pakistan were required to adopt the government routes for consolidation deals in the country. It is noteworthy that, except China, no other border nation has significant investments in India.

Have Startup Investments hit the Great FDI wall

Chinese conglomerates such as Alibaba and Tencent have heavily invested in the Indian subcontinent.

Chinese investment under the microscope

During the past half a decade, several Chinese tech investors have been pumping in an estimated $4 bn for the Indian start-ups, as quoted by the foreign policy think tank ‘Gateway House: Indian Council on Global Relations’. The investments have been scattered over all the major sectors in the Indian economy.

The funds from China have played a significant role in boosting Indian start-ups in an advanced growth phase. Currently, giant conglomerates such as Alibaba and Tencent possess most of the investments in the Indian subcontinent.

Have Startup Investments hit the Great FDI wallExpected impact of the FDI rules amendment: As a response to India’s FDI decision, a significant impact is expected to be observed on the trade relationship between the India and China along with some of the primary industries such as agri-fertilisers, raw materials for drugs or APIs, medical and technical equipment, industrial machines telecom equipment, and more.

A helpful ecosystem

While talking about funding for start-ups, after China, the Japanese VC funds and conglomerates have risen as the big funding house for the Indian startup ecosystem. The Japanese investor participation in the investment rounds of the Indian start-ups has risen over double from 19 in 2015 to 34 by the end of 2018. The country’s SoftBank alone has pumped $10 Bn in the Indian start-up ecosystem.

During the past few years, India has built start-up corridors with 10 countries such as Russian, Korea, The US, Israel Portugal, Finland, UK, Japan, Sweden, and Singapore. From, these, except the US, the Covid-19 impact seems controlled and these economies can be expected to bounce back much faster. So, shortly, the Indian start-ups can certainly turn to these startup ecosystems for further collaborations, if not investments.

Have Startup Investments hit the Great FDI wall

Masayoshi Son, Japanese businessman and the founder and current chief executive officer of SoftBank. Japanese investors remain bullish on india with SoftBank alone having invested $10 Bn in the Indian startup ecosystem.

Covid-19, has pushed away several investor ecosystems to recalculate their performance expectations. It is said that during the last year, 9 Unicorn Ventures indicated, with Indian Government nabbing investments from China, the responsibility of domestic venture capital firms increases to extend their support to early-stage start-ups in India.

Thus, there is every potential for the country to grow and develop despite no investment from China. With mutual growth as an objective, the world will soon be free from the clutches of the slowdown caused by the pandemic.

***

Disclaimer: The views expressed herein constitute the sole prerogative of the author. They neither imply nor suggest the orientation, views, current thinking, or position of FICCI.

Dr Param Shah is Director – UK, Federation of Indian Chambers of Commerce & Industry (FICCI).

About the Author: Dr Param Shah