Chinese investors hold stakes in 18 of the 30 Indian startup unicorns, and some companies backed by them indulge in "predatory" behaviour, which needs to be brought under scrutiny, a domestic think tank said on Thursday.

The comments from the city-based Gateway House come in wake of the restrictions imposed by India on foreign direct investment from all the neighbouring countries amid the COVID-19, possibly to avoid hostile takeovers.

"China is state-backed capitalism and companies like Huawei, Alibaba Tencent are at the vanguard. These companies are willing to absorb several years of losses in India. Many of the big investments are losing money with no route to profitability," Amit Bhandari, a fellow at the body, said on a webinar here.

Citing the case of fintech player and market place Paytm, taxi aggregator Ola and hotel booking platform Oyo, he said such companies have been continuously making losses and indulge in predatory pricing.

"We need to rethink also the role some of these companies are playing by providing too much equity. Many of the investments for example Paytm, Oyo or Ola are running into heavy losses running into thousands of crore. So, this is predatory pricing," he said.

"These companies are not profitable, they may not have a route to profitability....it may not be a bad idea that some of this equity should actually come under scrutiny," he said.

Bhandari said the cash burn by the Chinese investors-backed companies will jeopardise other companies run conservatively by preventing them from being viable. 

With China threatening to drag India to the World Trade Organisation over the recent regulation, the think tank's senior researcher Ambika Khanna said the case may not stand if India puts forth the argument of national security.

She also advocated national security interests should be woven into the FDI policy framework and also pitched for the creation of an inter-agency body consisting from the ministries of commerce, finance, Home, foreign affairs, and also the National Security Council to review deals, including existing ones, which harm Indian interests.

Bhandari said there can be a backlash from the startups ecosystem against the Indian moves against Chinese play, but added that other pools of capital like Silicon Valley, Hong Kong-based investors, the ones in Singapore are still open.

Apart from the 18 unicorn startups, the overall number of investments by Chinese investors stand at 95 at present, according to the data compiled by the body. 

India should continue to be vigilant about Chinese hardware and also apps like Tiktok which are gaining huge popularity, the body said. PTI AA

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