Source: Global Times
[ Global Times special correspondent in India Xu Fu Global Times reporter Fan Weiyuan Jirong Global Times special correspondent Ren Xiaoming] Recently, India has carried out surprise inspections on Chinese companies such as vivo, Xiaomi , etc. on suspicion of tax evasion, and Freeze the bank accounts of these companies. On July 21, Chinese mobile phone manufacturer Honor announced that it would withdraw from the Indian market due to “well-known reasons.” In fact, not only Chinese companies have been hit by the "big stick" of India's taxation, but many multinational companies such as British telecom giant Vodafone, American IBM, French spirits manufacturer Pernod Ricard and many other companies have also been "debt demanded" by India. . Honor is not the only multinational company announcing its departure from India. Indian government data shows that over the past seven or eight years, more than 2,000 multinational companies have suspended their operations in India. India has always hoped to become the new "world factory", but multinational companies have "packed up" and left Asia's third largest economy, embarrassing Indian Prime Minister Modi 's "Made in India" plan.
"They may be losing interest in India"
The situation is very serious
"They (foreign companies) may be losing interest in India", India's "Business Standard" quoted the country's government data on August 12 to draw this conclusion. At the end of last year, Indian 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. Considering that there are only about 12,000 "active" foreign companies still operating in India, this number is not many.
India's Minister of State for Corporate Affairs Singh recently stated that as of July 27, 2022, 1,777 multinational companies registered in India had "gone", while there were only 5,068 registered multinational companies in India. The Indian government's annual report also shows that the situation is serious. The report stated that the number of multinational companies registered in India each year dropped from 216 in fiscal 2014 to 63 in fiscal 2021, while the proportion of "active" foreign companies among all registered foreign companies dropped from 80 in fiscal 2014. % dropped to 66% in fiscal 2021.
Although since the outbreak of the new coronavirus pneumonia, technology companies represented by Google , capital companies represented by Blackstone , and aircraft manufacturers represented by Boeing and Airbus have all increased their investment in India. However, many multinational companies, including Swiss building materials company Holcim and Royal Bank of Scotland , have announced that they will withdraw from the Indian market. Many of these companies have been "deeply engaged" in India for many years. For example, German retailer Metro plans to sell its business in India that has been operating for about 20 years for about US$1.75 billion. American automaker Ford has been exploring the Indian market since the 1990s. In May this year, Ford announced that it would abandon the production of its electric vehicle in India for export. In September last year, the company decided to stop producing traditional cars in India.
Taxes discourage foreign companies
Logically speaking, India has a population of 1.38 billion and is one of the countries with the fastest economic growth in the world. It should have become a hot spot for multinational companies to compete for, but why do so many multinational companies decide to give up? What about the Indian market? India's Deccan Herald and many other media analyzed this, saying that two factors caused the above situation: first, the multinational companies themselves, including the failure to open the price-sensitive Indian market and adjustments to global development strategies; second, It is India's business environment that is not conducive to multinational companies, including high tariff barriers , etc. The Investment Climate Report released by the U.S. State Department in 2021 describes India as a "challenging place to do business." The Economic Freedom Index released this year by the American Heritage Foundation shows that India ranks 27th among 39 countries and regions in the Asia-Pacific, with a total score lower than the world average.
"India may have the highest tariffs in the world," former US President Trump once expressed dissatisfaction. After Modi came to power in 2014, he reformed India's tax laws, but at the end of 2018, he began to increase tariffs on a large scale, from an average of 13% to 20%. When Trump visited India two years ago, he expressed regret that American motorcycle manufacturer Harley-Davidson had to pay high import tariffs in India.Harley-Davidson has decided to leave the Indian market, and Tesla, which has been negotiating tariffs with India for a year, also said in May that it would shelve plans to sell electric vehicles in India. Tesla wants to "test the waters" of selling electric vehicles produced in other countries in India first, and the Indian government wants Tesla to produce electric vehicles in India first before giving the company tax incentives.
Tax disputes are also one of the important reasons why many multinational companies are afraid of India. In addition to Chinese companies such as Xiaomi, the Indian tax department has conducted tax investigations and issued high fines to 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 look closely and analyze them, you will find that they have certain There are some preferences, such as checking more multinational companies and being stricter on small businesses; when the economic situation is good, there will be fewer checks, and when the economic situation is bad, there will be more checks.
According to media reports such as the US "Capitol Hill", France's Pernod Ricard announced in July that it would suspend new investments in India due to tax disputes. Since 2007, Britain's Vodafone and the Indian government have fought over retroactive taxation. More than a decade of litigation. In 2012, the Supreme Court of India ruled in favor of Vodafone, 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 "ask for money" from Vodafone. The opposition party at the time, the Bharatiya Janata Party, called the Congress Party's move "tax terrorism." However, after coming to power, the Bharatiya Janata Party continued to invoke this law to "collect debts" from foreign-funded enterprises. The Modi government repealed this law in 2021, but previous disputes between India and many multinational companies have not ended.
"Manage cholesterol" hinders business development
The Indian government's management is also a headache for multinational companies. Some people in the Indian business community said that federal and local governments have formulated various laws, regulations and regulations, and these complex regulations have become "management cholesterol" and affect the development of Indian business. Agarwala, a partner at Indian business consulting firm Nangia Anderson, told the Deccan Herald that in order to improve the business environment, the Indian government continues to carry out management reforms. However, these reforms not only do not meet the standards, but also constantly change regulations. It brings uncertainty and trouble to enterprises. Some people believe that the Indian government approved an incentive plan worth US$10 billion last year to establish a chip industry base in the country. However, global chip giants have not become "enthusiastic" about India. Government management may be an important reason for this phenomenon.
In addition, the legal procedures for doing business in India are extremely cumbersome. According to the "Asia Times" report, World Bank data shows that it takes 18 days to register a company in India, which is about a week longer than the average time for OECD countries. In addition, there are 12 steps that you must go through to register a business in India. Applying for a building permit requires 34 steps and 110 days and must be approved by India's central and state governments. It is also not easy to meet the water and electricity conditions for production. For example, it takes about 8 days to 3 weeks to connect to electricity in India.
Land is a problem
How to obtain land has also become a problem for multinational companies developing in India. According to India's print news network, the country's land law fails to balance the interests of landowners with India's development needs, dampening the investment enthusiasm of foreign companies. Take India's first high-speed railway, the Mumbai-Ahmedabad high-speed railway, as an example. This railway has a total length of 508 kilometers, of which about 100 kilometers are located in Maharashtra, where Mumbai is located. In 2015, Japan received approval to build this railway, and the project started in 2017. Japanese media recently stated that only about 10 kilometers of this railway have been built so far, and the lack of land is the main reason for the project delay. According to reports, as of September 2021, only 30% of the project land had been acquired in Maharashtra.
India the print news network compared production at Tesla's Gigafactory in Shanghai with Japan's Suzuki Motor's factory in Gujarat.According to reports, only 537 days passed between Tesla reaching an agreement with the Shanghai Municipal Government and delivering the first car to customers. It took nearly five years for Maruti Suzuki India's (parent company is Japan's Suzuki Corporation) plant to reach production after reaching an agreement with the local government. An important reason for this phenomenon is the difficulty in land acquisition caused by the speculative increase in local land prices.
In addition to the above-mentioned problems, the Indian government's protective policies for domestic enterprises have become factors that restrict foreign investment. In addition, a report by the India Observer Research Foundation shows that Indian business laws contain a large number of provisions involving the imprisonment of criminals, highlighting the risks faced by entrepreneurs doing business in India.
What does it mean to distribute rice to 800 million people?
India has always hoped to become the new "world factory" and launched the "Made in India" plan with high profile in 2014. To achieve this goal, New Delhi has been trying to attract multinational companies to move their production bases from China to India in recent years. The United States has also always hoped that India would rise to contain China. However, the reality has disappointed the United States and other Western countries.
The US "Capitol Hill" recently published 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 tap its economic and military potential and contain China's development only by achieving higher economic growth, and this is only possible if more foreign investment flows into India and the Indian market is further opened. Although the Indian economy is expected to grow by 8% in 2022 and 6.9% in 2023, this is lower than the 12.5% and 8.5% originally forecast by the International Monetary Fund. Furthermore, India's growth is attributed to its large consumer market rather than increased foreign direct investment (FDI). From 2019 to 2021, the proportion of global FDI flowing into India fell from 3.4% to 2.8%, while China's share of global FDI increased from 14.5% to 20.3%.
After taking office in 2014, Modi said that he would take a number of measures to create a good business environment and strive to improve India's ranking in the global business environment report released by the World Bank to the top 50 in 2017. Although India has not yet achieved this goal as of 2021, in last year's global business environment report, India ranked 63rd and is one of the countries that has risen rapidly in recent years. However, "Make in India" did not significantly improve India's manufacturing industry as planned.
According to the Indian version of the US Fortune magazine, New Delhi plans to increase the proportion of manufacturing in gross domestic product to 25%. However, official statistics show that this is not happening. India's manufacturing sector's share of gross value added (GVA) fell from 18.4% in fiscal 2018 to 17.8% in fiscal 2021. In fiscal 2022, this number is expected to rise to 18.2%, still below 25%.
In addition, the Deccan Herald recently reported that the Indian Parliament Standing Committee pointed out in the report "Attracting Investment in the Post-COVID-19 Economy: Challenges and Opportunities for India" that during the COVID-19 epidemic, production bases will be transferred outside China. Most of the foreign companies have chosen , Vietnam, , Thailand and other countries and regions, and only a handful of companies have come to India. The Indian version of the American Fortune magazine reminded that the above data was not provided to Congress by the Indian government, but was summarized by the Indian Congress based on media reports, which shows that the Indian government has not tracked the trends of relevant companies.
The National Interest magazine website in the United States published an article on August 9, saying that India’s labor quality and infrastructure levels lag far behind China. In addition, factors such as the division of Indian society and the prevailing trade protectionism prevent it from replacing China's position in the manufacturing industry. Modi previously said in an interview with India's "Economic Times" that after the outbreak and during the blockade, the Indian government achieved "unparalleled success" in distributing rice to 800 million Indians. "Asia Times" pointed out that the numbers mentioned by Modi are crucial for foreign companies hoping to enter India. Among India's 1.38 billion people, 800 million are poor, low-income or low-middle-income people, and they 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 comparison, China is both a big producer and a big consumer. There are approximately 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 predicted by some people in the first few years of the 21st century. India is not yet strong enough to become China’s “strong rival”. However, despite various challenges, India's market size and geographical location will still make it a "hot spot" favored by some foreign companies.
