India bans Chinese apps: lesson for foreign investors

After border tensions with China during which 20 Indian soldiers died, amid demand to boycott Chinese products, India has barred 59 Chinese origin apps including Tik Tok and WeChat in June and 47 in July, terming some Chinese apps prejudicial to India’s sovereignty, integrity and national security. The Indian government has also prepared a list of over 250 apps that would be examined for any user privacy or national security violations.

This move to ban Chinese apps came just a couple of months after the government tweaked its foreign direct investment (FDI) policy, making government clearance mandatory for all inflows from (among others) China as China was trying to acquire distressed assets in strategic sectors during the pandemic.

Indian government statement reads, “The Ministry of Information Technology, invoking its power under section 69A of the Information Technology Act read with the relevant provisions of the Information Technology (Procedure and Safeguards for Blocking of Access of Information by Public) Rules 2009 and in view of the emergent nature of threats has decided to block 59 apps since in view of the information available they are engaged in activities which is prejudicial to sovereignty and integrity of India, defence of India, security of state and public order.”

China has lodged a protest with India over the ban, with Chinese embassy spokesperson Ji Rong saying “practical cooperation between China and India is mutually beneficial. Deliberate interference in such cooperation will not serve the interests of the Indian side. China will also take necessary measures to safeguard the legitimate rights and interests of Chinese companies."

India needs FDI for its economic recovery after Covid-19 lockdown as some of the key sectors in the country are highly dependent on foreign investment. In 2019, India received $51 billion in foreign investments, and was the world’s ninth-largest recipient of FDI, according to the UN Conference on Trade and Development.

However, any sudden changes in the foreign investment policy can make potential investors (overall, not only from China) doubtful and concerned about India as they want predictability in policymaking, transparency in policymaking, and a level playing field as they come into the market.

There are lessons here for foreign investors especially American and European investors that are diversifying or want to move away from China due to Covid-19 or trade wars. The lesson to learn about India is that one has to do a good market analysis as well as political and competitor due diligence with regard to any longer term projections, and Indian businesses as partners – and APART FROM being compliant with the existing law.