NEW DELHI: Since the Union government has placed several curbs on the capital being invested in India from companies sharing borders with the country, there will be temporary impact on the flow of investment to start-ups in India, Chief Economic Adviser KV Subramanian said on Wednesday.
"There will be some impact on start-up funding in the short run, but I do think that space will get filled by a large number of private equity (PE) companies from other countries," Subramanian told reporters at a virtual event organized by FICCI.
According to Press Note 3 issued by the Department for Promotion of Industry and Internal Trade (DPIIT) in April, a company or an individual from a country that shares land border with India will be allowed invest in any sector in India only after getting prior government approval.
The decision has a significant bearing on foreign investments from countries like China and Hong Kong. In fact, the order passed in April was largely aimed at controlling the sharp flow of Chinese investment and subsequent control in the Indian start-up ecosystem. Except for China, the other countries that share a land border with India have been negligible sources of foreign investment over the past two decades.
However, the past few years have seen the trend change, with a flood of foreign capital arriving in India. India received FDI worth USD 2.34 billion (Rs 14,846 crore) from China between April 2000 and December 2019. Speaking on the insolvency and bankruptcy process, Subramanian saidthat the ecosystem of creative destruction is important for any economy.
"Given the stress that had built up in the financial sector before we entered the crisis, we will now have to take care of some stress that will inevitably happen because of COVID-19. The eco-system of creative destruction is a very important part of any economy," he added.