The latest rejection deals a blow to BYD's ambitious plans for India

India rejected Chinese carmaker BYD Co.'s proposal to build a $1 billion electric-vehicle plant in partnership with a local company, according to people with knowledge of the matter.

The government dismissed the plan from BYD and Hyderabad-based Megha Engineering and Infrastructures Ltd. on national security concerns, the people said, asking not to be identified as the decision is not yet public. The use of Chinese homegrown technology is a concern, one of the people said.

Foreign direct investment in India's automobile sector doesn't typically require approval. Investment proposals from countries that share a border with India, however, need political and security clearance from the ministries of external and home affairs.

BYD declined to comment. Representatives for Megha, which was established in 1989 and has infrastructure projects in sectors from power to transport, didn't return phone calls or an email seeking comment.

Spokespeople for the Finance Ministry, the Heavy Industries Ministry and the Ministry of Home Affairs, which were all assessing BYD's proposal and vet investment coming into the country, didn't respond to requests for comment.

New Restrictions

India is restricting Chinese investment following a number of deadly clashes along the disputed border between the two nations, which have strained relations. Great Wall Motor Co. failed in an attempt to buy a mothballed General Motors Co. plant after it couldn't get approval to close the deal.

The Economic Times reported the government's rejection of BYD's investment plan on Saturday.

The government was probing SAIC Motor Corp.'s local unit MG Motor India Pvt over alleged financial irregularities, Bloomberg News reported last year. MG Motor has since announced plans to dilute its 100% share of the business, and aims to have it majority-owned by an Indian firm in two to four years.

The latest rejection deals a blow to BYD's ambitious plans for India. The company, which entered the country in 2007, sought to capture 40% of the domestic EV market by 2030, Sanjay Gopalakrishnan, senior vice president of its local operations, told Bloomberg in January. It's aiming to sell 15,000 electric vehicles in India this year.

Investment from elsewhere doesn't seem to be at risk. After meeting with Indian Prime Minister Narendra Modi in the US last month, Elon Musk said Tesla Inc. is likely to make a significant investment in the country.