Dev Lewis, a fellow at Hong Kong-based think tank Digital Asia Hub, said US firms are stepping in to fund Indian tech companies through equity investment, an approach more commonly associated with Chinese tech giants.

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“Typically, companies like Google, Facebook would have their own operations in India in a big way but not necessarily going down the equity investment route. Chinese investors came in and they preferred to invest in Indian start-ups typically through equity investments,” Lewis said.

While Google has a strong presence in India, including many research labs and data centers, it is not known to make big equity investment bets in local companies like Chinese companies have. That said, Google and its private equity investment arm Capital G have made some notable deals in India, including investments in delivery service app Dunzo, fintech company Aye Fiance and online car marketplace CarDekho.

In contrast, over the past five years Chinese tech investors have injected an estimated US$4 billion in Indian start-ups, while the accumulated investment level in 2016 was well under US$1 billion, according to research firm Gateway House.

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Alibaba Group, parent company of the South China Morning Post, has invested in Indian e-commerce company Snapdeal, digital wallet Paytm and food delivery platform Zomato, while Tencent Holdings has backed Indian messaging company Hike and ride-hailing app Ola. Over the past five years, 18 of India’s 30 unicorns were Chinese-funded, according to Gateway House.

A US$100 million investment by Chinese fintech company Ant Financial into Zomato is currently going through the new FDI review process, according to a report in the Financial Times. Ant is an affiliate of Alibaba.

Alibaba and Tencent did not immediately reply to questions about their investments in India.

Analysts say Chinese investors have been particularly keen on injecting equity into e-commerce, on-demand delivery, ride-hailing and mobile gaming companies, all of which have seen tremendous growth in China.

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But as India changes its stance on FDI, it won’t be business as usual for the Chinese. “The investment barriers truly impede Chinese giants from staking their claims in the Indian internet market,” Beier Kan, an analyst at Equal Ocean, wrote in a report.

Lewis said the new FDI policy has altered Chinese investors’ strategies and outlook when it comes to India. “From what I’m hearing, big Chinese investors like Alibaba and Tencent have no reason, and are not under much pressure, to sell. But they are going to pause future investments,” he said.

Lewis expects some Chinese investors with smaller stakes to prepare their exit from Indian start-ups in the coming months. “You might see American [or Indian] investors come in, or even Indian VC funds, who will negotiate [with the Chinese] for a reasonable exit,” he Lewis.

Ujas Shah, research analyst at The Economist Intelligence Unit (EIU), said that Google’s public pledge to invest in India augurs well for the country’s tech sector in the absence of Chinese private equity and venture capital.

“Google’s investment definitely has been helping bridge the gap that Chinese investments have left … But I think more investment will be needed,” Shah said.

Matt Sheehan, a fellow at the Paulson Institute’s Macro Polo think tank, said that in terms of raw funding American investors may fill some of the void if Chinese VCs pull out, Indian tech companies often favour Chinese investors for the intangible benefits.

“Beyond just the money, lead investors also end up providing a lot of guidance and connections. Chinese investors are often attracted to Indian companies because they're working on many of the same developing world problems that investors built their own fortunes on in China,” Sheehan said.

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“There's a lot of mentorship and knowledge-sharing that can't necessarily be replicated by an American investor living in Palo Alto,” he added.

Liuqing Yu, another analyst at EIU, said there are further risks if tensions between the two countries continue to rise, such as possible imposition of a beneficial ownership cap for funding from China, which would require Indian government approval for investments over the stated limit.

“Beneficial ownership for the Chinese can be capped at 10 per cent. That could be an escalation,” Yu said.

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The harsher policy environment is already making life more difficult for Chinese tech companies in India. Reuters reported that following the app ban, Alibaba’s subsidiary UC Web planned to cut staff in India and ByteDance, operator of TikTok, was asked by the government to answer 77 questions, including whether it censored content, worked on behalf of foreign governments, or lobbied influencers.

While curbing tech investment and banning apps may be easy actions to take, analysts said India is unlikely to be able to cut off its reliance on Chinese hardware and smart devices any time soon. “The anti-China sentiment is really strong right now. But one thing to watch is whether it lives on because it's really hard to wean the consumers off of Chinese tech,” Shah said.

“This is pretty apparent in the kind of share that Chinese companies have in terms of smartphones in India, which is about 70 per cent with all the Chinese companies combined. For example, the One Plus Eight Pro phone [from Chinese smartphone maker One Plus] still managed to sell out in just minutes [despite the border tensions],” he added.

Before Chinese tech giants kicked off their investment spree in India about four years ago, US tech companies had already laid down a strong foundation in the country. Analysts say US firms’ big expansion into the Indian market was bound to happen anyway, with the Google and Facebook investments in Jio Platforms just two recent examples of that trend.

In January, Jeff Bezos announced that Amazon would invest US$1 billion to bring small and medium businesses in India online through Amazon’s own platforms – a move that itself sparked a backlash from the country’s neighbourhood shop owners who feared cut price online competition would put them out of business.

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Apple also revealed plans to ramp up local manufacturing in India, with its primary manufacturing partner Foxconn pledging this month to spend US$1 billion to expand a factory in the country. Last week, retail giant Walmart was reported to have injected another US$1.2 billion into Indian e-commerce platform Flipkart Group, in which it is already the majority shareholder.

The fact that India’s policymakers became wary of Chinese tech and gravitated towards the US did not come as a surprise to some analysts. “A lot of Chinese thinking is around the fact that India is going to move towards the US anyway,” Lewis said.

“When you look at the last few months, it's very clear that the Indian tech ecosystem is a natural partner with the US. And no matter how much Chinese investment has come in so far, that's not going to change that dynamic,” he added.