Due to the continuing face-off on the Sino-Indian border since April 2020, the heat is on Chinese companies who seek to invest or operate in India. India intensified the screening of foreign direct investment proposals from neighbouring countries that share a land border with it to prevent “opportunistic takeovers/acquisitions of Indian companies” according to Press Note 3 of 2020 issued by the department for promotion of industry and internal trade (DPIIT). China is the most important country in this regard, with cumulative FDI inflows of $2.4 billion till March. Out of 382 FDI proposals received from Chinese firms for screening, India has approved only 80 as on June 29, according to a DPIIT reply to a RTI querythat didn’t indicate the quantum of proposed investments or how many were rejected. No doubt, this scrutiny has upset the big-ticket investment plans of automaker Great Wall Motors, which has abandoned its $1-billion manufacturing project that entailed taking over General Motor’s plant in Pune. Another auto company, Changan Automobiles, has closed its India office early last year.
In recent months, there has also been a flurry of action by the Enforcement Directorate, Directorate of Revenue Intelligence, and the income-tax department on Chinese smartphone manufacturers like Xiaomi, Vivo, Huawei and Oppo. Xiaomi has had Rs 5,500 crore seized by the ED for making such payments to three foreign-based entities as royalty payments since 2015, despite allegedly not availing of any services from them. Vivo, which together with its sister concerns accounts for 40% of smartphone shipments to India, has also faced ED heat for remitting 50% of its revenue over five years to its parent company, allegedly to avoid taxes. Huawei is also under the I-T department’s scanner over alleged tax evasion. DRI has slapped a demand notice on Oppo for alleged custom duty evasion. While it is true that foreign companies must follow the laws of the land, it is difficult not to surmise that this action is related to the chill in bilateral ties as India seeks to impose costs on China for its border transgressions.
While this scrutiny of investments and raids on Chinese smartphone manufacturers does raise serious questions on their future prospects, paradoxically, however there does not appear to be a diminishing dependence on Chinese goods or telecom technology. The dragon remains one of our largest trade partners with two-way trade rising to $115 billion in FY22. The bilateral trade numbers hardly indicate any discernible downtrend this fiscal with $18.4 billion registered during April-May which is similar to a year earlier. China remains the largest source of our imports with a share of 15.4% while only 5% of our exports are headed to the mainland. The trade balance is heavily tilted against India with a deficit of $72.9 billion. Even with respect to mobile telephony, India’s dependence on China is still substantial. The lure of a booming domestic market has attracted Chinese firms to assemble phones and dominate the Indian market. The bad news is that it is largely based on imported parts and components from the mainland, contributing to the massive imbalance in bilateral trade. The upshot is that India’s dependence on China is intact and is perhaps growing, which definitely is not what was intended during the last couple of years.