Curbs on Companies from Countries Illegally Holding Indian Land

New Delhi: As tensions run high along the border with China, the government is examining a proposal to impose trade and procurement curbs on companies from countries ‘illegally occupying Indian territory’, specifically those active in territories such as Pakistan-Occupied Kashmir (PoK).

ET has gathered that while a final call is yet to be taken, high-level discussions are underway to scrutinise the proposal threadbare, and discuss its implementation and business implications.

Any decision would directly impact Chinese firms as the northern neighbour ‘illegally occupies’ 38,000 sq km of Indian territory in Ladakh. Also, Pakistan, which has occupied a part of Kashmir, has ceded over 5,000 sq km in the Shaksgam Valley to China.

If the proposal is accepted, the curbs are likely to be brought in through changes in the Public Procurement (Preference to ‘Make in India’) Order of 2017, sources said. Some changes may also have to be made in the General Financial Rules. Officials confirmed that the proposal is being looked at carefully, given its ‘high sensitivity’ and possible ramifications on diplomatic ties with China.

In April, without naming China, the government had removed FDI coming in from that country from the automatic route, fearing hostile takeovers. “An entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the government route,” the notification said.

Big Investments by Chinese Companies

However, the FDI bar preceded the ongoing standoff on the Line of Actual Control (LAC) in eastern Ladakh. The proposal to restrict companies has picked up pace because of the rising tensions between India and China. On Monday, India banned 59 Chinese apps by invoking the national security clause in the IT Act.

There are several Chinese companies in India with huge investments in infrastructure projects and telecom equipment.

The discussions are being held amid a growing chorus to keep China’s Huawei out of India’s planned 5G trials.

Issued in June 2017, the Public Procurement (Preference to ‘Make in India’) Order of 2017 could be key to more such moves. The order is central to the initiative to ensure preference in government procurements for local suppliers, and calls for a minimum local content of 50%.

The Provision

The only provision that deals with foreign governments in the 2017 order is Clause 10(d). This clause says that if a nodal ministry is satisfied that Indian suppliers of an item are not allowed to participate/compete in procurements by a foreign government, it may restrict or exclude bidders from that country from eligibility for procurement of that item and/or other items.

New Delhi has in the past urged other nations to not invest in Indian territories illegally occupied by neighbours. In September 2019, ET had reported that defence minister Rajnath Singh had urged South Korea to block investments in infrastructure and other projects in PoK.

Korea had assured India that it would not grant any governmental benefits, such as subsidies and tax breaks, to its companies setting up shop in the disputed region.

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Source: ET

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