A health worker sanitizes an area near the Nizamuddin mosque in New Delhi, India, on April 10. Photo: Xinhua

After imposing curbs on foreign direct investment (FDI) from China, India is reportedly clamping down on Chinese foreign portfolio investment (FPI) -- a move analysts said would further sour bilateral economic relations.

The Indian government is looking to restrict access to the market by Chinese portfolio investors as it sought to plug a possible loophole allowing investors to acquire shares in India's listed companies. The measures may include a mandatory "approval route" for Chinese FPI, according to a Times of India report on Monday.

The Indian government wanted to make sure that investors who are blocked by the newly revised FDI rules cannot use the FPI option to gain a significant ownership in a company, said the report.

The Indian government on April 22 announced changes to the FDI policy and ordered prior clearance for investments from countries with which India shares a land border, a move widely seen as targeting China.

Under the new rule, any investment will have to acquire regulatory approval in India. 

Sha Jun, executive partner at the India Investment Services Center of the Yingke Law Firm, told the Global Times on Wednesday that there are many foreign investors including some from China who have  portfolio investment in India. "It was to be expected that India would take a move targeting Chinese investment."

The Indian government became concerned when China's central bank raised its stake in Housing Development Finance Corp, India's largest mortgage lender, on April 13. That transaction is believed to have been the main factor triggering the amendment of investment rules.

"As China-Indian political trust has dropped because of policies rolled out by the Indian side in obstructing Chinese investment, the bilateral business environment and cooperation faces a bumpy road," said Sha.

The COVID-19 epidemic in India also poses safety issues for Chinese investors who would plan to go to India for business trips, Sha noted. India's COVID-19 death toll rose to 2,436 with total infections hitting 70,000-mark as of press time. The national lockdown has been extended for another two weeks.

Chinese investment in India vanished after the launch of the new FDI policy, a swift turnaround compared with the investors' rising enthusiasm last year, Li Jian, founder and CEO of Draphant, a Chinese consulting firm focused on Indian investment services, told the Global Times on Wednesday.

As of December 2019, China's cumulative investment in India had exceeded $8 billion, far more than the total investments from other countries that share a border with India, data from the Chinese Embassy in India showed.

Most Chinese investors are taking a wait-and-see attitude due to volatility of Indian government policies and a belief that Indian policies are being influenced by some Western countries, the US in particular, which are restricting Chinese investment, according to Li.

"Such curbs will not only reduce Chinese businessmen' confidence in investing in the Indian market but will also hurt India's economic revival," Li said.