Mumbai: Since the Centre tightened the Press Note 3 norms in April last, as many as 150 private equity/venture capital investment applications from China and Hong Kong are pending with the government, starving the country's startup ecosystem of funds, says a report. The Press Note 3 (PN3) changes were effected in April, restricting foreign direct investment from countries that share land borders with India.
Analysts are of the view that the move was primarily aimed at China as lots of private funds were investing billions into domestic companies. The lack of clarity on what constitutes 'beneficial ownership' as defined in the new PN3 has also led to the steep decline in PE/VC investments from China and Hong Kong.
"Since the changes were effected in April 2020 to the PN3 regarding foreign direct investment, more than 150 applications from Chinese/Hong Kong entities seeking investments have been pending," according to the report by law firm Khaitan & Co.
As per data from Venture Intelligence, a Chennai-based firm which tracks financial transactions and valuation of private companies, such investments from China and Hong Kong have fallen by a full 72 per cent to USD 952 million in 2020 from USD 3.4 billion in 2019. The countries that share land borders with India are Afghanistan, Bangladesh, Bhutan, China, Myanmar, Nepal and Pakistan. Before the April changes to PN3, only entities from Pakistan and Bangladesh needed prior government nod for investments. Khaitan & Co Partner Rabindra Jhunjhunwala told .