Indian unicorns bridle as New Delhi looks a Chinese gift horse in the mouth

In a move that appears aimed squarely at China, India is tightening the reins on investment from neighbouring countries

For billion-dollar tech firms that have grown fat on Chinese funding, it’s ‘like a shakeout taking place in slow motion’

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An advertising balloon for Paytm in Ooty, Tamil Nadu, India. The digital payments platform is one of many that relies on Chinese funding. Photo: Bloomberg

Published: 3:00pm, 30 May 2020Updated: 11:39am, 2 Jun 2020

As the coronavirus continues to ravage the globe, Indian unicorns hungry for investment are running into a problem – Chinese capital is drying up.

And given the fact that many of India’s billion-dollar firms have already introduced cost-cutting measures such as lay-offs, pay cuts and operational freezes, that is a development that could prove costly in the coming months.

More than half of India’s unicorns (it has between 30 and 32, depending on the method of evaluation) rely on Chinese investment, among them the digital payments platform Paytm, food-delivery firm Zomato, grocery retailer Bigbasket and gaming app Dream11.

All of these will be affected by New Delhi’s new policy on Foreign Direct Investment (FDI), announced in mid-April, which requires any investment from a neighbouring country to be approved by the government. The move, according to the Ministry of Commerce and Industry, is to prevent “opportunistic” takeovers and acquisitions.

While India shares land borders with Pakistan, Bangladesh, Myanmar, Nepal, Bhutan and Afghanistan, the investment coming from these countries is negligible. Instead, the policy appears to be aimed squarely at China, the fastest-growing source of FDI in India over the past five years. It is worded in a way that would also curb Chinese investments channelled through intermediaries in places like Hong Kong, Singapore and Mauritius.