The Finance Ministry has officially denied a Reuters report claiming that India was planning to remove restrictions on Chinese companies bidding for government contracts. Government sources have categorically refuted the news item, clarifying the ministry's position on the matter.

Official Denial from Government Sources

Government sources have specifically addressed the Reuters report, stating that the Finance Ministry has no plans to scrap the existing restrictions on Chinese firms participating in government contract bidding processes. The denial comes as a direct response to the published news item that suggested such policy changes were under consideration.

Current Policy Position

The official denial reinforces the government's current stance on Chinese companies' participation in government procurement processes. Finance Ministry sources have made it clear that the existing framework regarding Chinese firms and government contracts remains unchanged, contrary to the claims made in the Reuters report.

Major Indian engineering and capital goods companies witnessed sharp stock declines on Thursday following reports that India's Finance Ministry is considering removing five-year-old restrictions on Chinese firms bidding for government contracts. According to Reuters, citing two sources, the move may come as the government seeks to revive commercial ties with China amid eased diplomatic and border tensions.

Stock Market Performance

Bharat Heavy Electricals led the decline among engineering stocks, with shares plunging up to 14% during intraday trading before recovering slightly. The stock finally closed at ₹276.90, up from the day's low of ₹261.50, though still ending nearly 9.00% lower on the NSE.

This marked BHEL's biggest single-day drop since June 4, 2024, when the stock had declined 21% following the Lok Sabha election results announcement. Despite Thursday's fall, BHEL shares have outperformed benchmarks with 20.00% returns over the past year, compared to Nifty's 9.00% and Sensex's 8.00% returns.

Broader Market Impact

The overall market sentiment remained negative, with benchmark indices witnessing significant declines. The Nifty ended with cuts of 1.00% at 25,876.85, falling by 263.90 points, while Sensex dropped 780 points to settle at 84,180.96.

The selling pressure was witnessed across sectors, with particular weakness in IT, metals, pharma, and PSU banking stocks.

Policy Background and Implications

The restrictions under consideration for removal were implemented in 2020 following deadly border clashes between Indian and Chinese troops at Galwan. Under the current framework, Chinese companies must register with a government committee and obtain political and security clearances before participating in government contract bidding processes.

Several government ministries have reportedly requested exemptions from the current restrictions, citing project delays particularly in the power sector. The curbs have specifically affected India's plans to expand thermal power capacity to nearly 307 GW over the next decade.

Competitive Concerns

The potential policy change could significantly impact Indian engineering companies whose revenue and order books heavily depend on large government contracts. These firms have enjoyed a competitive advantage over the past five years, as they could bid for government projects without facing competition from Chinese companies known for aggressive pricing strategies. The proposed removal of restrictions represents a significant shift in India's procurement policy and could reshape competitive dynamics across multiple sectors including power generation, infrastructure development, and technology projects.