Investments hampered by fickle policies

Indian actions against Chinese firms driven by political dynamics: Experts

India's business environment characterized by nebulous market regulations and fickle law enforcement is not conducive to wooing foreign investment and may harm its long-term development, experts said.

In December, India's Enforcement Directorate, the agency that fights financial crimes, arrested three senior executives of the Indian unit of Vivo, a Chinese mobile company, on allegations of money laundering. The three appeared at the Patiala House Court in the capital New Delhi on Dec 26, with no verdict reached and their detention extended by two days.

On Dec 30, the court ruled their arrest illegal and ordered their release, while mandating that they report to the agency daily until Jan 3, NDTV, a local channel, reported.

A spokesperson for Vivo in India expressed concern over such incidents, stating: "The recent arrests demonstrate continued harassment and, as such, induce an environment of uncertainty among the wider industry landscape."

Qian Feng, director of the research department at Tsinghua University's National Strategy Institute, interprets Vivo's ordeal as a "clear sign of the Indian government's tendency to politicize and pan-securitize economic matters".

"The actions against Chinese firms in India, which has escalated to unprecedented levels recently, is driven by both domestic and global political dynamics," he said.

"With the general election approaching, the Bharatiya Janata Party government tries to construct China as an imaginary enemy, and by taking action against Chinese enterprises, it tries to stir up nationalist sentiments to secure the BJP's electoral base."

From the perspective of international politics, India's actions toward Chinese companies are also influenced by the US-led decoupling policy against China, Qian said.

Lin Minwang, deputy director of the Center for South Asian Studies at Fudan University, noted that the sectors India has targeted to decouple from China are those that it believes domestic suppliers can supplant Chinese ones.

"Take the mobile phone industry, for example. Chinese mobile phone companies entered India on a large scale in 2015, and after nearly a decade of development, India now has the largest shipment volume of low-end mobile phones in the world and has gained independent capacity in production of such phones," said Lin.

"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," he said.

Apart from Vivo, Chinese smartphone makers like Xiaomi and Huawei have all been troubled by the Indian government in recent years, with Xiaomi being accused of making illegal remittances and violating foreign exchange laws and Huawei being accused of tax evasion. Oppo, too, faced tax fraud allegations.

Even non-Chinese firms, such as South Korea's Samsung, have faced similar accusations of duty evasion in 2023.

"India adopts a cherry-picking approach to foreign enterprises, favoring those that are beneficial to the country while suppressing those that the Indian authorities feel pose threats to domestic industries," said Lin.

For foreign companies that fall out of favor, the Indian government has plenty of tools to make their lives difficult there, as the Economist wrote in August. The regulatory measures at the government's disposal include outright prohibitions on certain products, hefty tariffs, and most important of all, noncompliance with tax rules, which the Economist said, is the Indian government's favorite accusation, as it's almost impossible to abide by them all.

'Rigorous legislation'

"India's legislation is so rigorous that violation of law could be quite widespread in its society, which makes selective punishment a common tactic used by the government to suppress foreign enterprises," said Lin.

"Adopting a zero-sum, replacement mindset instead of a collaborative, win-win approach toward foreign enterprises will only further deteriorate India's business environment and solidify its reputation as a graveyard for foreign investment," said Qian. He said that such tactics may ultimately cause long-term harm to India.

According to data from the Reserve Bank of India, the country's central bank, foreign direct investment coming into the country decreased by 16.3 percent to $71 billion for the 2022-23 fiscal year ending on March 31. The net FDI saw a more significant drop, falling by 27 percent to $28 billion.

A government report shows that during 2014-21, while nearly 11,000 foreign firms entered India, 2,783 had left or closed during the same period, a dispiritingly high number for a supposedly fast-growing economy, The Economist reported.

"Despite the attractiveness of India's vast market to foreign investment, its unfavorable business environment often results in high costs for foreign investors. Those who have learned their lessons there will choose to leave," said Lin.