Suspicious of the interest shown by China in the Bangalore-based software industry, the government has asked the Foreign Investment Promotion Board (FIPB) to be cautious while clearing the Chinese firms.
The issue was discussed at a recent meeting of the Cabinet Committee on Economic Affairs (CCEA).
The meeting expressed concern over the Chinese incursion into the Indian software industry.
But CCEA was opposed to a blanket ban on the Chinese investment. "One has to be discreet and cautious," said a senior government functionary, who denied that the issue ever came up at the Cabinet Committee on Security (CCS).
Sources admit that the issue was related to economic matters and not so much to the national security.
Sources admit that the interest shown by the Chinese firms in the software industry is a calculated move to learn the tricks and grab the software market where India currently holds a strong position.
"The Chinese are known for these tactics. What we are trying to do is to take precautions against such a scenario," a senior government source said.
Despite the growing suspicion about the Chinese firms' intentions, official sources admit that any open move against them would send "wrong signals" about the Indian markets and reforms.
The FIPB has only been directed to take precautions and seek the help of external affairs and home ministries before clearing investment proposals from China, sources said.
This is not the first time that the government has shown its wariness of the Chinese investment. The civil aviation ministry revoked the contract to a Chinese firm for setting up X-ray machines at airports, which included Srinagar, Leh and in north-eastern states.
It was cancelled after the home ministry raised serious objections. The lowest global tender to dredge the docks in Mumbai was submitted by a Chinese company but the tender was cancelled after the Navy said the proposal would endanger Indian security.
