Economic Watch: Make or break: The critical choice facing businesses in India

0 Comment(s)Print E-mail Xinhua, February 12, 2024
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HONG KONG, Feb. 12 (Xinhua) -- After only four months in office, Indian Prime Minister Narendra Modi shot out a flagship national economic reform, dubbed "Make in India," to make the country a global manufacturing hub.

The ambitious campaign was to create a conducive environment for investments, develop a modern and efficient infrastructure, and open up new sectors for foreign capital, trying to repeat at the broader national level the economic miracle Modi created in Gujarat state, where he served for over a decade as chief minister.

Almost 10 years on, the main arrows of the campaign, however, have missed their targets. "India's Western partners see India as a 'challenging place to do business,'" said The Hill, citing the U.S. State Department.


Multinational companies, including Berkshire Hathaway Inc., IBM and Vodafone, have long complained of exhausting hurdles in India. Between 2018 and March 2023, 559 foreign companies ceased their operations in India, while only 469 began operations, according to Hindustan Times, one of India's leading English dailies.

The Modi government has been trying to improve India's business environment. Billions of rupees have been poured into infrastructure upgrades. Red tape and other bureaucratic hurdles have been reduced, and incentives like tax breaks and subsidies have been introduced to attract more foreign and domestic investment.

However, regulatory flip-flops, high tariff barriers, perplexing land policies and infrastructure issues have prompted foreign companies to reconsider investing in the country.

According to The Hill, between 2019 and 2021, the share of global foreign direct investment inflows to India has shrunk from 3.4 percent to 2.8 percent.

"Some policy measures taken by the government are positive and encouraging ... but it is still too little and too little. Also, the implementation of the policies remains poor on the ground," Mohammed Saqib, an economist at the India-China Economic and Cultural Council, told Xinhua.

Furthermore, appearances can be deceiving in India. Despite being the world's most populous country with a population of 1.4 billion, its middle class and skilled labor force are too small to drive consumption and upgrade industries. Its states speak different languages and enforce different laws, hardly forming a unified large market but numerous small circles of demands instead, thus driving up compliance and manufacturing costs for multinational companies.

For Enterprises, "even selling basic consumer goods does not necessarily work," according to the Economist. "Hindustan Unilever, which purveys sachets of shampoo for just a few rupees, has seen virtually no sales growth in dollar terms since 2012." The article's subtitle summed up foreign sentiment: "Multinational businesses relying on Indian consumers face disappointment."


Since Modi came to power, the most significant change brought by the political strongman in India's domestic political arena has been a surge of nationalism. The extreme sentiment has spilled over into the economy.

Complaints and competition trigger retribution from bureaucrats, with probes by the tax department or fraud investigation office.

"His (Modi's) government plays a markedly interventionist role in managing the economy, in a way that can make it dangerous for firms to place their stakes," said the New York Times.

India has imposed high tariffs or bans on imported components to protect domestic manufacturing of smartphone components and laptop computers. Gradually, "Make in India" has become "Make for India."

The Indian government has targeted sectors where it believes local suppliers can replace foreign ones.

"After China introduced the entire mobile phone industrial chain to India, which helped cultivate the market and develop related local technologies, India is now driving out Chinese companies to make room for the growth of its domestic enterprises," said Lin Minwang, deputy director of the Center for South Asian Studies at Fudan University.

"Some (foreign companies) may simply have felt unwelcome; local bureaucrats and business leaders often see foreigners as a direct threat to domestic interests," said the Economist.

There has been a tendency to match trade and economic policy reforms with measures that effectively reduce imports and insulate domestic producers from foreign competition. Such an approach will prove detrimental to India's economic interests in the longer term, said Mint, an Indian business publication.


India can enhance its manufacturing sector by improving competitiveness rather than protectionism. After a series of border conflicts with China, Indian protectionism and nationalism have been on the rise and caused Chinese enterprises to suffer.

Since 2020, India has intensified its scrutiny of Chinese firms and banned hundreds of Chinese mobile applications, including TikTok and WeChat, citing national security concerns. ZTE and Huawei, leading Chinese telecom entities, have suffered a similar fate.

Chinese smartphone makers, including Vivo, Xiaomi and OPPO, are frequently targeted by the Indian authorities, with their workplaces raided, executives arrested and funds seized.

"There are multiple reasons (behind the decision), but the main trigger was the Galwan Valley conflict. It changed the sentiments of the Indian public against China," Saqib told Xinhua.

"Officially, India is open to Chinese business, as long as this conforms with Indian laws. In practice, India's government uses several tools to make Chinese firms' life in India difficult or impossible," summarized the Economist. Discriminatory measures adopted by the Indian side to suppress Chinese firms include bans, trade barriers, bureaucratic friction and a licensing regime.

Since India declared in April 2020 that investments from countries sharing a border with it must receive special approvals, it has approved less than a quarter of the 435 applications for foreign direct investment from China. "No neighbor was named, but the target was clearly China," the Economist said.

According to analysts, taking action against Chinese entities in India may not face much resistance from the public and could even be beneficial for the Modi government. It would demonstrate Modi's readiness to confront China economically, which could help him gain support from domestic voters and Western allies for more assistance.

The ongoing harassment of Chinese companies highlights the uncertainty of the business environment in India. This can serve as a warning to other investors to think twice before investing. Enditem

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