Public procurement contracts, investments routed through Hong Kong need govt approval

Richa Mishra/ KR Srivats New Delhi | Updated on August 11, 2020

Secretary Expenditure TV Somanathan

Not only for bidding of government procurement contracts, even investments flowing into India through Hong Kong-based investment vehicles or entities will henceforth need prior government approval. This is because Hong Kong, being a territory of China, needs to conform to the newly altered government procurement and investment rules for those countries with which India shares land border.

The new public procurement rules require companies (bidders) originating from countries with which India shares land border to register with the government body and get prior security and political clearance.

“It was confirmed that Hong Kong is considered as part of China,” Secretary Expenditure TV Somanathan told BusinessLine.

Therefore, the recent restrictions in government procurement — introduced apparently in the face of Chinese aggression and to discourage and screen Chinese investments — will cover entities within Hong Kong operating as regional headquarters or having holding companies even though it may not share a land border with India.

India had, in July, amended the General Financial Rules 2017 to place restrictions on bidders from countries which share a land border with it. In mid-April, India had tweaked the FDI policy mandating government approval for all investments flowing from countries with which it shares a land border.

Afer these changes, there were doubts in industry circles as to whether Hong Kong, being part of China, too would be covered under the restrictions. Private equity industry is understood to have knocked at the government doors seeking clarity on the issue.

The concern for the PE industry is that it could affect investments flowing from funds domiciled in Hong Kong. It would affect foreign direct investment transactions given that Hong Kong — which was administered till 1997 by UK— has been an international financial and business hub with the presence of a large number of wholly-owned subsidiaries of holding companies from countries like the US/Europe and UK.

Even after administration control of Hong Kong was handed to China, several US/UK/European corporates are using their Hong Kong entities to manage and control their operations in South East Asia.

Published on August 11, 2020

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