Indian government strengthens rules for trade with adversarial nations including China and Pakistan

New Delhi, October 12: In an effort to bolster economic security, the Indian government has tightened regulations on business dealings with countries considered hostile, specifically China and Pakistan. These new restrictions prohibit direct engagement between both domestic and foreign companies and entities with "commercial arrangements" in these nations. These stringent measures are an amendment to the government's July 2020 order, which made prior screening and registration mandatory for bidders with commercial ties to countries sharing a land border with India.

The 2020 order, implemented on July 23, limited public project purchases from companies in countries bordering India, citing national security concerns without naming any specific nation. In response to increased security apprehensions, the Union government recently issued a directive to all Indian states, requiring them to obtain approval before entering into business relationships with neighboring countries considered hostile.

This directive was issued after it was observed that certain private companies in specific states were attempting to engage Chinese contractors in infrastructure projects. The move aims to curb such engagements and prioritise security. Notably, this decision was made based on security intelligence received before the October 7 terror attack in Israel.

According to reports, several private infrastructure projects in certain states have been stalled due to these new regulations. For instance, executives of China's BYD Auto Co Ltd had to meet with private Indian firms' executives in neighboring countries like Nepal and Sri Lanka due to difficulties in obtaining Indian visas.

The 2020 restrictions on public project purchases were initially introduced in response to Chinese aggression along the Indian borders. This retaliatory measure followed the Department for Promotion of Industry and Internal Trade's (DPIIT) notification in April 2020, which removed Chinese investments from the automatic approval route, citing concerns about potential takeovers of Indian firms during the fight against the Covid-19 pandemic.

India's response to Chinese aggression in eastern Ladakh in June of the same year, which resulted in casualties on both sides, included the ban on 59 mostly Chinese mobile applications and the scrutiny of potentially sensitive investments in critical sectors from certain countries, particularly China.

The latest restrictions extend beyond direct Chinese involvement to encompass even indirect participation in strategic sectors such as power, petroleum, coal, and telecommunications. These measures are part of broader economic initiatives to reduce the influx of cheaper Chinese products, including the imposition of anti-dumping duties and the promotion of the "Make in India" campaign.

Since April 2020, India has approved less than a quarter of the total foreign direct investment (FDI) applications from China, reflecting a shift in the country's economic policies and increased scrutiny of foreign investments, especially from China.