States, PSUs back off from Chinese contracts; new orders also scarce as India calls for China boycott

By: and |
Updated: Jun 23, 2020 9:39 AM

Even though a holistic ‘Boycott China’ policy could boomerang, select deals with Chinese firms repealed, more to follow.

India received FDI inflows of $470 billion, but China’s share in this was just $2.4 billion.India received FDI inflows of $470 billion, but China’s share in this was just $2.4 billion. (Representative image)

Determined to cause measurable economic harm to China, several Central and state government entities have decided to either cancel large contracts awarded to Chinese infrastructure companies or refrain from issuing new orders to companies from the aggressive neighbouring country even if they have emerged as successful bidders in auctions. Such decisions, of course, would necessitate fresh bidding in many cases, and possibly additional costs to the buyers/projects.

Also, even as the Centre hasn’t yet outlined any “Boycott-China” policy as such, at least three state governments – Maharashtra, Uttar Pradesh and Haryana – have pledged they will take care to ensure that Chinese businesses don’t really make a headway in their states in the near future.

If these are not enough, as FE reported recently, New Delhi is hardening a crackdown on substandard and “non-essential” imports across several segments, a move that will likely hit Chinese exporters the most. The curbs could be in the form of both tariff and non-tariff measures – the latter being an oft-used tool by China itself to keep competitive imports at bay.

As Covid-19 pandemic has severely hit the liquidity position of many domestic firms, making them easy prey for cash-rich Chinese investors, the government recently tightened its foreign direct investment (FDI) policy to curb “opportunistic takeovers/acquisitions” by entities in bordering nations. Any FDI proposal by investors from the bordering countries including China (and not just Pakistan and Bangladesh whose FDI proposals are anyway under government route) will now require government clearance, even if foreign investments for that sector are placed under the automatic route.

However, the question which is on the top of analysts’ minds is to what extent India can carry out the economic threats to China in the short-term, without harming its own economy.

Anyway, the trend of revocation of work contracts won by Chinese firms is only gaining pace. Close on the heels of Centre-run Dedicated Freight Corridor Corporation, an arm of the Railways, terminating a four-year-old Rs 471 crore signalling-and-telecom work contract to a Chinese company last week, citing the project’s overall lack of progress and the firm’s refusal to furnish technical documents, the Haryana government put two tenders with combined worth of Rs 1,130 crore for the installation of flue gas de-sulphurization (FGD) systems at the state’s thermal power plants on hold, after Chinese firms quoting the lowest rates. Moreover, the state government indicated that a few more contracts involving Chinese firms might be reviewed in the next few days.

Further, the Union ministry of housing and urban affairs, which initially said it can’t deny China’s STEC the contract to build an ADB-funded underground stretch of the Delhi-Meerut Regional Rapid Transit System for which the firm emerged as the lowest bidder – it bid Rs 1,126.9 crore versus domestic major L&T’s Rs 1,170 crore – swallowed its words and gave the contact to L&T.

According to reports, the Maharashtra government had put three MoUs worth Rs 5,000 crore with Chinese companies on hold, under the government’s ‘Magnetic Maharashtra 2.0’ initiative, even before the Chinese troops unleashed violence at the Galwan Valley. Three Chinese companies – Hengli Engineering, PMI Electro Mobility Solutions JV with Photon and Great Wall Motors – had signed MoUs to invest at Talegaon in Pune district under the campaign.

This apart, the Mumbai Metropolitan Region Development Authority (MMRDA) said in a press statement that it has cancelled the bidding process for the Rs 500-crore design- manufacture-supply-testing-and-commissioning contract for 10 monorail rakes along the Jacob Circle-Wadala-Chembur monorail line because both bids that it received were from Chinese manufacturers – China Rail Road Corporation and Build Your Dream. “In the current economic situation due to Covid-19 and in line with the various policies announced by the government of India to encourage the Make in India schemes, it has been decided to look for an Indian Technology partner for development and long term support,” RA Rajeev, metropolitan commissioner, said in the statement. The MMRDA will start retendering process immediately, he said, adding that revised eligibility criteria will include having manufacturing facilities established in India for last 10 years on similar projects.

According to sources, the Uttar Pradesh energy department has decided to stop purchasing any Chinese products; it won’t install the 8,000 smart meters that have already been purchased from PT Hexing, a Chinese company based out of Indonesia.

Power minister Shrikant Sharma told FE the government would ensure that even the vendors do not supply or use the goods that are made in China. Of these 40 lakh smart meters being installed under UDAY scheme for discoms, 2 lakh have already been installed and a consignment of 8,000 meters from PT Hexing has arrived.

Haryana had earmarked around Rs 1,130 crore for the two FGD systems projects which, sources say, will now be tendered again, under domestic competitive bidding mode. The equipment were to be installed in two 300 MW units at the Yamunanagar power plant and two 600 MW units at the Rajiv Gandhi thermal station in Hisar. The re-tendering process will further delay the mandatory installation of emission reducing equipment, after the plants missed their initial deadline of December 2019.

China has a big and increasing presence in fast-growing work contract space in India, which is on an infrastructure creation drive, and it still accounts for a third of New Delhi’s merchandise trade deficit, but Chinese FDI into India hasn’t been comparable. Over the last 20 years (FY01-FY20). India received FDI inflows of $470 billion, but China’s share in this was just $2.4 billion.

There has been a surge in domestic sentiments against Beijing for the violent border stand-off caused by the aggressive neighbour, leading to fervent calls for boycott of Chinese goods, but this is easier said than done as in many areas, as for example the solar power sector and electronic inputs, Indian businesses’ reliance on intermediate and capital goods from China cannot be supplanted overnight. In fact, the Yamunanagar plant was the first project in the country where equipment was supplied by China’s Shanghai Electric Corp. The Rajiv Gandhi plant, only a few months ago, had contracted China’s SEC to clean up its electrostatic precipitator fields under its emission reduction initiative.

Across the country, as much as 9,570 MW of the currently under-construction power units — all from the private sector — have contracted with Chinese companies for supply of boilers, turbines and generators. The total under-construction capacity in the country is 15,861 MW of which 12,245 MW is in the private sector. In the last 10 years, 22,420 MW of super critical power plants have been commissioned and of these 12,540 MW were built on Chinese equipment, including Adani’s Mundra and Tirora units, CLP India’s Jhajjar plant, Reliance Sasan and Vedanta’s Talwandi Sabo project. Other state-run power projects where Chinese equipment have been installed are DVC’s 600 MW Raghunathpur plant in West Bengal, Tamil Nadu’s 600 MW Mettur project and the 600 MW Kalisindh plant in Rajasthan.

Biswajit Dhar, professor at the Centre for Economic Studies and Planning of JNU, told FE recently: “We have to recognise that China has a huge presence in the supply chain involving India and any move to disrupt that will hurt the Indian economy and consumers. In segments like electronics, telecom and pharmaceuticals, our dependence on China is substantial. So we must try and prepare our industry for a long haul by building a solid (manufacturing) eco-system and gradually reducing our dependence on imports from China.”

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