With the topical geopolitical elaborations that have impelled tenser scrutiny of
Chinese investments coming into local Indian startups via tax havens like
Mauritius, the Reserve Bank of India (RBI) has reimbursed the applications of
numerous Indian startups who were applying for the Non-Banking Financial
Company (NBFC) license. Some of these Indian startups include Sequoia-
backed BharatPe, Google Capital-backed CarDekho, and the Sequoia and
Matrix Partners- backed digital banking startup Jupiter.
The money coming from the Chinese venture capital (VC) and private equity
(PE) funds registered in Mauritius, which is on the Financial Action Task Force
(FATF) grey list, is being seen as capital from a jurisdiction with fragile norms
to offset money laundering. This has resulted in the RBI returning three
applications for NBFC licenses.
Most of these startups who applied for a license and have raised VC funding
will have to wait longer, at least for the rest of the year, because of the current
situation, before there is a change in the RBI’s stance. This would cause an
impediment for the monetizing plans of the lending operations of startups
through their own NBFCs as that will have a lower cost of capital, than
partnering with others.
The NBFC sector has been reeling since the payment evasion of Infrastructure
Leasing and Financial Services (IL&FS). Since the virus outbreak, the
government and the RBI have been trying to alleviate the liquidity shortage for
India has been making manifold attempts at embargoing Chinese influence in
the Indian economy since the Ladakh border conflict that started in May. For
this purpose, the government has made mentioning the ‘country of origin’ for
products obligatory for e-commerce companies, to help the consumers make a
well-versed ruling, while the government unswervingly ups the wager against
Chinese imports and calls for an ‘Aatma Nirbhar Bharat’.
Friction against China ascended in April when India revised its Foreign Direct
Investment (FDI) policy to prevent unscrupulous takeover of Indian firms
reeling from the financial disruption caused by the Covid-19 pandemic and the
resultant lockdown. The government necessitated the prior sanctioning of the
syndicates in neighboring countries coveting to invest in Indian firms. As a
comeback to this amendment, China called the move a violation of international
Envisaging a regression in Chinese investments into the Indian startup
economy, the Department for Promotion of Industry and Internal Trade
(DPIIT), was in talks with the Insurance Regulatory and Development
Authority of India (IRDAI) and Securities and Exchange Board of India (SEBI)
to deliberate whether state-run insurers and pension funds can be allowed to
invest in government-backed startup-focused fund-of-funds.
-- Pratha Sachdeva
(MCM DAV colege for women, Chandigarh)