NEW DELHI - The Indian government has tightened rules for companies from neighbouring countries seeking to bid for government tenders and projects in what is seen as the latest salvo from New Delhi against Beijing following recent border troubles.

The order comes even as India and China continue to negotiate disengagement from several points along the de facto border after a violent clash on June 15 resulted in the death of 20 Indian and an unknown number of Chinese soldiers.

The government order did not specifically mention China, but said the new rules apply to companies that come from countries with which India shares a land border.

But it exempts countries that receive lines of credit or development assistance, effectively whittling it down to China and Pakistan.

India has little commercial relations with Pakistan. Exemptions have been maintained for limited cases including for procurement of medical supplies related to coronavirus till December 13.

"The Government of India today amended the General Financial Rules 2017 to enable imposition of restrictions on bidders from countries which share a land border with India on grounds of defence of India... including national security," said a finance ministry press release on Thursday (July 23).

This included, the statement said, tenders and projects from all government entities including "public sector banks and financial institutions, autonomous government bodies, Central Public Sector Enterprises (CPSEs)and Public Private Partnership projects receiving financial support from the government."

Firms from these countries will have to register with the Department for Promotion and Industry and Internal Trade, and will require political and security clearance from the ministries of home and external affairs.

5G ROLLOUT

While the government has clarified that companies that have already got tenders would not be affected, the move could make it tougher for China's Huawei and ZTE to participate in the planned 5G rollout.

The border troubles between India and China have resulted in the worst downturn in ties with India rethinking its economic ties with China.

The border troubles between the two countries, which enjoyed trade of US$92.68 billion (S$132 billion) in 2019, have led to a complete breakdown of trust between the two countries.

Amid a backlash to boycott Chinese goods, India banned 59 Chinese apps, including TikTok, on grounds of national security and followed up with an announcement Chinese companies would not be allowed in highway and road projects.

Chinese imports have been stuck for longer periods at ports and airports across the South Asian country.

And even before the border troubles started, the government tweaked foreign investment rules, mandating firms from neighbouring countries to seek government approval.

The move, denounced by China as discriminatory, was seen as being aimed at preventing the takeover of Indian entities by Chinese firms at a time of economic stress.

Still, more than 100 Chinese companies have a presence in India, according to the Ministry of External Affairs. These include Chinese state-owned companies like Sinosteel and Shougang International that have won projects in India.

A Brookings study said the total current and planned investment from China has crossed at least US$26 billion.

BORDER FALLOUT

India's move, analysts said, was a fallout of the border troubles.

"We can say this is collateral damage (from the border troubles). It will put restrictions on Chinese firms like the ban on 59 apps," said Professor Srikanth Kondapalli, a China expert, at Jawaharlal Nehru University.

"It does pinch the Chinese. India is a growing story, not this year but next year we will bounce back. We are looking at an investment of one trillion in infrastructure. The Chinese are going to lose out on projects. Indian firms will have a better chance," he said.

He said an even bigger threat for China was if other countries took cues from India. Speculation is rife that the US could also ban Chinese app TikTok.

The border trouble, which has hastened an economic rethink, is also far from resolved.

Indian media reports have said disengagement at Pangong Tso, a lake in Ladakh, and one of multiple areas of differences has stalled for now.

Fresh diplomatic talks took place on Friday (July 24), where both sides agreed for another meeting of Senior Commanders' talks "to work out further steps to ensure expeditiously complete disengagement and de-escalation and restoration of peace and tranquillity in the border areas", said a release from the Ministry of External Affairs.

They agreed to "sincerely implement" the understandings reached in earlier meetings and agreed that "full restoration of peace and tranquillity was essential for smooth overall development of bilateral relation."

The Indian side just a day before had reiterated that peace along the border was essential for the relationship.

"As we have stated earlier, the maintenance of peace and tranquillity in the border areas is the basis of our bilateral relationship," said Ministry of External Affairs spokesman Anurag Srivastava at a briefing on Thursday.

"Therefore it is our expectation that the Chinese side will sincerely work with us for complete disengagement and de-escalation and full restoration of peace and tranquillity in the border areas at the earliest."