Why have more than 2,000 foreign companies in India "run away"?

  [Global Times Special Correspondent in India Xu Fu Global Times Reporter Fan Weiyuan Jirong Global Times Special Correspondent Ren Xiaoming] Recently, India conducted surprise inspections on Chinese companies such as vivo and Xiaomi on the grounds of suspected tax evasion, and froze the bank accounts of these companies.

On July 21, Chinese mobile phone manufacturer Honor announced that it was withdrawing from the Indian market for "well-known reasons".

In fact, not only Chinese companies have been hit by the "big stick" of Indian taxation, but many companies such as British telecommunications giant Vodafone, American IBM, and French spirits producer Pernod Ricard have been "debt" by India.

The multinational corporations announcing their departure from India are not only proud.

Over the past seven or eight years, more than 2,000 multinational companies have suspended their operations in India, according to Indian government data.

India has always hoped to become the new "factory of the world", but multinational companies have "packaged" to withdraw from Asia's third largest economy, embarrassing Indian Prime Minister Narendra Modi's "Make in India" plan.

 'They may be losing interest in India'

the situation is dire

  "They (foreign companies) may be losing interest in India," India's "Business Standard" reported on August 12, citing the country's government data.

At the end of last year, India's Minister of Commerce and Industry Goyal said that from 2014 to 2021, a total of 2,783 multinational companies closed their subsidiaries or offices in India.

That's not a lot considering that there are only about 12,000 "active" foreign companies still operating in India.

  India's Minister of State for Corporate Affairs Singh recently stated that as of July 27, 2022, 1,777 multinational companies registered in India "gone", while there are only 5,068 registered multinational companies in India.

The Indian government's annual report also shows that the situation is dire.

The report said the number of MNCs registered in India each year fell from 216 in FY2014 to 63 in FY2021, while the share of "active" foreign companies among all registered foreign companies fell from 80 in FY2014. % fell to 66% in fiscal 2021.

  Although since the outbreak of the new crown pneumonia, technology companies represented by Google, capital companies represented by Blackstone, and aircraft manufacturers represented by Boeing and Airbus have increased their investment in India, including Swiss building materials company Holcim , Royal Bank of Scotland and many other multinational companies have announced that they will withdraw from the Indian market.

Many of these companies have been “deeply cultivated” in India for many years. For example, German retailer Metro plans to sell its business in India for about 1.75 billion US dollars.

American automaker Ford has been "in the middle" of the Indian market since the 1990s.

In May, Ford announced it was abandoning the production of electric vehicles in India for export.

In September last year, the company had already decided to stop making traditional cars in India.

Taxes keep foreign companies away

  It stands to reason that with a population of 1.38 billion, India is one of the countries with the fastest economic growth in the world. It should have become a "sweet pastry" for multinational companies, but why do so many multinational companies decide to give up the Indian market?

India's "Deccan Herald" and other media analyzed this, saying that two factors caused the above situation: first, the reasons of multinational enterprises themselves, including the failure to open the price-sensitive Indian market, the adjustment of global development strategies, etc.; second It is the business environment in India that is not conducive to multinational companies, including high tariff barriers.

The US State Department's 2021 investment climate report describes India as a "challenging place to do business".

According to the Economic Freedom Index released by the American Heritage Foundation this year, India ranks 27th among 39 countries and regions in the Asia-Pacific region, with an overall score lower than the world average.

  "India is probably the country with the highest tariffs in the world," former US President Donald Trump once expressed dissatisfaction.

After Modi came to power in 2014, he overhauled India's tax code, but in late 2018 he began a massive increase in tariffs, from an average of 13 percent to 20 percent.

During a visit to India two years ago, Trump lamented that American motorcycle maker Harley-Davidson had to pay high import duties in India.

Harley-Davidson has decided to leave the Indian market, while Tesla, which has been in talks with India over tariffs for a year, said in May it was shelving plans to sell electric vehicles in India.

Tesla wants to "test the waters" in India to sell electric cars made in other countries, and the Indian government wants Tesla to produce electric cars in India first before giving the company tax incentives.

  Tax disputes are also one of the important reasons why many multinational companies are discouraged from India.

In addition to Chinese companies such as Xiaomi, the Indian tax authorities have conducted tax investigations and issued heavy fines on many foreign companies such as Nokia, IBM, Walmart, and Cairn Energy.

Liu Lin, a senior director of the Indian branch of the Big Four accounting firms, told the Global Times reporter that tax inspections by the Indian tax authorities are common for companies, but if you carefully observe and analyze, you will find that they have some Some preferences, such as more inspections on multinational companies, and more stringent inspections on small businesses; when the economic situation is good, the investigation will be less, and when the economic situation is bad, the investigation will be more.

  According to the US "Capitol Hill" and other media reports, because of tax disputes, France's Pernod Ricard announced in July to suspend new investment in India, and since 2007, the British Vodafone and the Indian government have hit ten times because of the retrospective taxation issue. years of lawsuits.

In 2012, India's Supreme Court ruled that Vodafone won the case, but the then-ruling Congress party was dissatisfied with this. The Indian Congress passed a legislation to bypass the Supreme Court's ruling and allow the tax department to continue to "demand money" from Vodafone.

The BJP, which was the opposition party at the time, called the Congress party's practice "tax terrorism". However, after the BJP came to power, it continued to invoke this law to "claim debts" to foreign companies.

The Modi government repealed this law in 2021, but the previous disputes between India and a number of multinational companies have not ended.

'Managing cholesterol' hinders business development

  The management of the Indian government is also a headache for multinational companies.

Some people in the Indian business community said that the federal and local governments have formulated various laws, regulations and regulations, and these complex regulations have become "manage cholesterol" and affect the development of Indian business.

Agarwala, a partner at Indian business consulting firm Nanjia Anderson, told the Deccan Herald that to improve the business environment, the Indian government continues to carry out management reforms, but these reforms not only fall short of standards, but also keep changing regulations Bring uncertainty and bring trouble to the business.

There is a view that the Indian government approved an incentive plan worth 10 billion US dollars last year to establish a chip industry base in the country, but the global chip giants have not become "enthusiastic" for India.

Government management may be an important reason for this phenomenon.

  In addition, doing business in India, the legal procedures are extremely cumbersome.

According to Asia Times, World Bank data shows that it takes 18 days to register a company in India, which is about a week longer than the average for OECD countries.

Also, registering a business in India has to go through 12 steps.

It takes 34 steps and 110 days to apply for a building permit and must be approved by the central and state governments of India.

It is also not easy to meet the hydropower conditions for production. For example, it takes about 8 days to 3 weeks to connect electricity in India.

land is a problem

  How to obtain land has also become a difficult problem for multinational companies to develop in India.

According to India's the print news network, the country's land law failed to balance the interests of landowners with India's development needs, which discouraged foreign companies from investing.

Take India's first high-speed railway, the Mumbai-Ahmedabad high-speed railway as an example. The railway is 508 kilometers long, of which about 100 kilometers are located in Maharashtra, where Mumbai is located.

In 2015, Japan was approved to build the railway, and the project started in 2017.

Japanese media recently said that the railway has only been repaired for about 10 kilometers, and the lack of land is the main reason for the delay of the project.

As of September 2021, Maharashtra has only acquired 30% of the project land, the report said.

  India's the print news network compared the production of Tesla's Gigafactory in Shanghai with that of Japan's Suzuki Motors in Gujarat.

The report said Tesla reached an agreement with the Shanghai government and delivered its first car to customers in just 537 days.

It took nearly five years for the factory of Maruti Suzuki India (the parent company is Japan's Suzuki) to reach production from the agreement with the local government.

An important reason for this phenomenon is the difficulty in land acquisition caused by the speculative rise in local land prices.

  In addition to the above problems, the Indian government's protection policies for domestic enterprises have become factors restricting foreign investment.

In addition, the Indian Observer Research Foundation report shows that Indian business laws contain a large number of provisions involving the imprisonment of offenders, highlighting the risks faced by entrepreneurs doing business in India.

What does it mean to distribute rice to 800 million people?

  India has always wanted to become the new "factory of the world", and in 2014 launched a high-profile "Make in India" initiative.

To achieve this, New Delhi has been trying in recent years to attract multinationals to relocate their production bases from China to India.

The United States has also always wanted India to rise as a way to contain China.

However, the reality has disappointed Western countries such as the United States.

  The US "Capitol Hill" recently issued an article calling on the Biden administration to pay attention to the phenomenon of many multinational companies withdrawing from India.

The West believes that New Delhi can only tap its economic and military potential and contain China's development if it achieves higher economic growth, which is only possible if more foreign investment flows into India and the Indian market is further opened up.

Although India's economy is expected to grow by 8% in 2022 and 6.9% in 2023, this is lower than the IMF's original forecasts of 12.5% ​​and 8.5%.

Moreover, India's growth is attributed to its large consumer market rather than an increase in foreign direct investment (FDI).

From 2019 to 2021, the share of global FDI inflows to India fell from 3.4% to 2.8%, while China's share of global FDI rose from 14.5% to 20.3%.

  After taking office in 2014, Modi said he would take a number of measures to create a good business environment and strive to raise India's ranking to the top 50 in the World Bank's Global Doing Business report released by the World Bank in 2017.

While India has yet to achieve this target as of 2021, it ranked 63rd in last year's Doing Business report, one of the fastest-rising countries in recent years.

However, "Make in India" has not significantly boosted manufacturing in India as planned.

  According to the Indian edition of the US "Fortune" magazine, New Delhi plans to increase the proportion of manufacturing to GDP to 25%.

However, official statistics show that this has not happened.

The share of India's manufacturing sector in gross value added (GVA) fell from 18.4% in FY2018 to 17.8% in FY21.

In fiscal 2022, that number is expected to rise to 18.2%, still below 25%.

  In addition, the "Deccan Herald" recently reported that the Indian Congress Standing Committee pointed out in the report "Economic Attraction After New Coronary Pneumonia: Challenges and Opportunities for India" that during the New Coronary Pneumonia epidemic, the production base was moved outside China. Most foreign companies choose countries and regions such as Vietnam and Thailand, and only a few companies come to India.

The Indian edition of the US "Fortune" magazine reminded that the above data was not provided by the Indian government to Congress, but was summarized by the Indian Congress based on media reports, which shows that the Indian government has not tracked the movements of relevant companies.

  The website of the National Interest magazine of the United States published an article on August 9, saying that India's labor quality and infrastructure level are far behind China.

In addition, factors such as the division of Indian society and the prevailing trade protectionism make it impossible to replace China's position in the manufacturing industry.

Modi previously said in an interview with India's "Economic Times" that after the outbreak, the Indian government achieved "unparalleled success" in distributing rice to 800 million Indians during the blockade.

Asia Times noted that the numbers Modi mentioned are crucial for foreign companies looking to enter India.

Of India's 1.38 billion people, 800 million are poor, low-income or lower-middle-income people who receive food subsidies from the government.

These people will not be consumers of expensive goods and services from Western companies.

Foreign companies will not enter a country just because it has a large population, people need to have enough purchasing power to consume their products.

In contrast, China is both a big producer and a big consumer.

There are about 800 million middle- and high-income people in China.

It is estimated that India's purchasing power is only 20% of China's.

  "Capitol Hill" believes that the West's hope for India to become a modern and prosperous country has not been realized at the speed some people predicted in the first few years of the 21st century.

India is not yet strong enough to be China's "rival".

However, despite the challenges, India's market size and geographic location will make it a "hot spot" for some foreign companies.