Over a hundred of investment applications, primarily from Chinese origin investors looking to pump capital into the Indian startup ecosystem, are stuck in regulatory quagmire, according to multiple people in the know. These proposals, ranging from early to growthstage investments, are on hold or are being moved between various departments and ministries as the government continues to maintain strict curbs on capital inflow from Beijing and Hong Kong.

Lawyers representing investors and startups, as well as government officials that ET spoke to, said they did not expect clearances anytime soon, till the geopolitical situation between the two countries improved.

DPIIT demanding additional information

In April, India brought into effect a regulation requiring investments emanating from countries with which the country shares a land border, to be cleared directly by the government rather than the earlier automatic approval route. The people cited above said that there has been a steep increase in the number of follow-up questions and demand for additional information by the Department for Promotion of Industry and Internal Trade (DPIIT).

Officials are also asking applicants to provide information by flying down to India and not only answer queries through multiple phone calls or even over Zoom calls, sources said.

“They (government agencies) are trying to do multi-level checks to establish if this money is coming from China… the Reserve Bank of India is anyway empowered to ask these questions, now the government agency is becoming the frontal agency,” said one lawyer aware of the developments.

Read: Funding from Chinese investors may dry up for Indian startups

After the publication of Press Note 3 on April 22, there were expectations that the government would create a fast track channel to clear investment proposals, however, that is yet to happen. An approval can now take up to three months, according to officials.

A senior government official speaking on the condition of anonymity said, “Not just this (China investments) but there are other proposals which come from countries which do not have land borders with India under the approval route. Considering the border situation, no one will hurry to do it.”

“The process is on, even in a routine case it usually takes 2-3 months’ time,” the official said.

MHA examination

Lawyers privy to developments said investment applications are also being examined by the ministry of home affairs (MHA). “Unless (MHA clearance) is issued, approvals might not be given,” said a lawyer who estimates that clearances could take 4-5 months. “But most important is the security clearance and MHA has till now not given security clearance for any application,” the person said.

“I know in my applications, everything has been cleared. They’re waiting for the MHA security clearance before issuing the final approval. That’s where it has got stuck,” he added.

Chinese investors have poured in close to $6 billion into India’s digital ecosystem over the last two years, as they looked to park capital in the world’s fastest-growing, yet largely untapped, consumer market.

Since the publication of Press Note 3, some major Indian consumer interest startups, which had earlier picked up large chunks of capital from Chinese investment behemoths, such as Alipay and Tencent, have started attracting and thereby, raising capital from non-Chinese investors.

Earlier this month, online food delivery major Zomato brought on board New York-headquartered Tiger Global Management as a new investor, which has put in $100 million in the Gurugram-headquartered company.

Non-Chinese investors back

Separately, online fantasy sports platform Dream11 also raised $225 million from the likes of Tiger Global Management, TPG Tech Adjacencies (TTAD), ChrysCapital and Footpath Ventures, signalling that Indian startups had begun moving away from Chinese investors to meet their current and future funding needs, and going back to US and European investors, who had for long been their mainstay, before the Chinese capital made its entry a few years ago.

Atul Pandey, partner at Khaitan & Co which has filed several applications on behalf of Indian firms looking for investments from China, said, “Most of the applications are under consideration and queries are being raised, but it is moving in the right direction. Once the security clearances are given, the approvals should come.”