Can Indian industries be ‘self-reliant’ as Chinese investments return since border clash?
Among the prominent names that won approvals include Chinese electronics major and Apple vendor Luxshare, as well as a joint venture between India’s Bhagwati Products and Huaqin Technology.
Since the deadly 2020 border clashes in the Galwan Valley, in which 20 Indian soldiers and four Chinese troops died, India and China have been in a military stand-off at their shared border in eastern Ladakh. There have been some signs of tentative rapprochement between the two countries lately.
The investment clearances mark the first set of such approvals in recent years since the border tensions that resulted in stringent scrutiny of all Chinese investments. Now, Indian industry executives say the government is set to open the door wider to investment opportunities from Chinese firms.
“China is the factory of the world and this will continue for some time. We want to be self-reliant and move from assembly to manufacturing of components,” Vinod Sharma, chairman of the Confederation of Indian Industry’s national committee on electronics, told This Week in Asia.
“Towards that goal, there is a new policy being considered by [India’s Ministry of Electronics and Information Technology] to promote manufacture of components and sub-assemblies,” he added.
New Delhi is considering offering fiscal incentives to companies that can provide technical know-how, a move that is aimed at courting not only businesses from China but those from Taiwan, Korea and Japan as well since Asia is the industry’s hub, Sharma said.
The majority shareholding for such companies will be with Indian entities that would look to strike up partnerships with Asian counterparts, with the aim to eventually become self-reliant within a definite time period, he added.
“They would like to see the Indian process is not unending,” Sharma said, adding that he expected the new policy to be taken up by India’s federal cabinet or the country’s highest decision-making body, within three months. The policy would also likely ease entry of Chinese workers into India, he said.
Another reasons Indian officials said they relaxed the ban on Chinese investments is because global manufacturers such as Apple and Foxconn eyeing new bases in India like to have an easy linkage with their existing bases in China. Therefore, it has become imperative to relax rules and regulations because they can hamper overall investments into India’s manufacturing, they added.
The first hint of a relaxation in India’s policy towards Chinese investments came in the country’s economic survey last month that typically provides a window into government thinking. The survey is released annually ahead of the federal government’s budget that forms the centrepiece of the nation’s economic policy.
The economic survey said more foreign direct investment from China would bring several benefits for India, such as improving local manufacturing and exports, noting that India may not yet be able to take up completely Chinese slack in global manufacturing that has occurred as western companies have been diversifying from China.
It is inevitable that “India plugs itself into China’s supply chain”, the survey said. “Whether we do so by relying solely on imports or partially through Chinese investments is a choice that India has to make.”
In the financial year that ended in March, China was India’s largest trading partner with US$118.4 billion in two-way trade, edging past the US. India’s exports stood at US$16.65 billion, while imports were at US$101.75 billion, leaving a gaping trade deficit of over US$85 billion.
Prime Minister Narendra Modi’s government introduced the Production Linked Incentive programme in March 2020 for scaling up electronics manufacturing – which has been expanded to 14 other industry sectors – but the local industry has remained dependent on Chinese import despite New Delhi’s efforts to insulate against any future supply-chain disruptions similar to the pandemic.
At that time, China’s strict blockade measures curtailed the supply of several intermediate and finished products.
Discordant voices
Some industry analysts in India railed against the proposal to relax curbs on Chinese investments.
“I am not sure how India is going to benefit. Chinese foreign direct investments will only create more dependence,” said Satya Gupta, president of the VLSI Society of India, which supports the creation of a domestic electronics manufacturing.
India’s dependency on Chinese mobile phone brands alone has snowballed to 76 per cent from two per cent in 2015, he said.
If we start importing components from [China], India’s whole ecosystem will become dependent
“Brand dependence takes a long time to undo. If we start importing components from [China], India’s whole ecosystem will become dependent. We will only end up doing low-end manufacturing,” Gupta said.
The benefits of exporting assembled or sub-assembled components are limited as India ends up getting only around five to six per cent of the revenues, he said, pointing out that its product owners who typically take decisions such as on sourcing components.
India’s efforts should be focused on creating home-made brands that can make a mark internationally, Gupta said. “Why will someone in China make a decision in favour of Indian industry?” he asked.
Another analyst said the success of Indian industry’s long-term aim to wean away import dependence would only work with massive government and industry support for research and development.
“If you are not developing your own technology, this dependence will become permanent. By the time this particular generation of technology becomes obsolete, Indian industry will become uncompetitive again,” said Biswajit Dhar, a professor at the Delhi-based research institute Council for Social Development.
Successive Indian governments have failed to tap India’s vast pool of technological talent for product innovation that is the cornerstone of manufacturing in any major economy, he added.
“Without innovation, your industrial policy is dead in water,” Dhar said.