- Apple and one of its biggest suppliers, Foxconn, are among some of the more notable companies moving manufacturing operations to India as a result of Prime Minister Narendra Modi’s “Made in India” policies.
- Shadows of protectionism in India’s policy still exist, and it seems to contradict India’s keenness to polish its global reputation and embrace global trade and industry through its presidency of the Group of Twenty of the leading industrialized and developing economies.
- Capital controls limit the India company’s fund-raising options, which could limit the companies’ growth ambitions.
Undated editorial illustration of Indian rupee cash bills and stock market index board.
Javier Gersi | moment | Getty Images
When India suddenly announced restrictions on imports of personal computers and laptops in early August, it took major suppliers such as Apple, Samsung and Dell by surprise.
By curtailing imports from major device makers, the move was ostensibly in line with Prime Minister Narendra Modi’s commitment to boost manufacturing under his “Made in India” programme, and position India as a high-tech manufacturing hub for everything from consumer electronics to semiconductors.
Yet these shades of protectionism seem at odds with India’s eagerness to burnish its global reputation as the country prepares to host leaders of the Group of 20 leading industrialized and developing economies this weekend.
At a time when shifting geopolitical alliances are increasing India’s strategic importance, such constraints add to the contradictions that global investors have to negotiate as they search for viable alternatives to China’s slowdown.
There has also been this creeping increase in protectionism – and some of it has been random. You don’t understand why they did that…
Praveen Krishna
Johns Hopkins University School of Advanced International Studies
“I don’t want to call it a puzzle of the system, but it is certainly a bit of a paradox,” said Praveen Krishna, professor of international economics at Johns Hopkins University’s School of Advanced International Studies.
“On the one hand, the government has shown great interest in international investment and manufacturing being established in India, on the one hand, providing a package of incentives for these players to come,” he added.
“There’s also been this creeping increase in protectionism – and some of it has been random. You don’t understand why they’re doing that, and these aren’t necessarily strong industries,” Krishna said.
New regulations – Released August 3 – Restricts imports of laptops, tablets, “all-in-one” PCs, and “extra-small size” PCs and servers. It was initially effective immediately, but was later delayed to November.
There are some exceptions, including individual purchases from online sellers.
In response to X, the social media platform formerly known as Twitter, the Indian Minister of Information Technology, said Rajeev Chandrasekhar These regulations were aimed at ensuring that India’s technology ecosystem uses only “reliable and verified” systems that are imported and manufactured locally, while reducing reliance on imports.
“While this move will certainly bolster the position of established local players — along with global players with operations set up in the country, such as Apple — we see the imposition of restrictions affecting foreign companies.” [information and communications technology] sellers from a demand-side perspective,” BMI Industry Research analysts at Fitch wrote in a note dated August 8.
They said the move would add to the end-product costs of foreign sellers and shift consumer spending towards Indian companies or existing foreign sellers with a manufacturing base in India.
India’s three biggest mobile brands – China’s Xiaomi and Vivo, along with South Korea’s Samsung – have established manufacturing bases in the country, suggesting that any new entrant will need to partner with an experienced local player with a manufacturing base or choose to invest in areas New in India. BMI market report said.
To attract foreign investors, Modi’s government doubled its initial budget in May to 170 billion rupees ($2.04 billion) for a production-related incentive program for IT hardware approved in 2021.
“As I see it, the Government of India could have encouraged domestic production of laptops under these circumstances [production-linked incentives] “Without further restricting imports in this way,” Krishna said.
In the long term, India is the only single market that offers a potential scale similar to that of China.
Sumedha Dasgupta
Economists Unit
“Geopolitical tensions between the United States and China, the rapid adoption of e-commerce, the COVID-19 pandemic, and the war between Russia and Ukraine have prompted a rethinking of strategies for re-sourcing, diversifying supply routes and localizing manufacturing,” Sumedha Dasgupta, senior analyst at the Economist Intelligence Unit, told Network. CNBC:
“South-east Asian economies such as Vietnam have so far been the main beneficiaries of supply chain diversification. However, India is increasingly well placed to benefit from these trends, as India is, in the long term, the only other market that offers potential scale,” she added. “It can be compared to those in China.”
To be sure, the Modi government has done much to boost India’s economy during the ruling Bharatiya Janata Party’s decade in power – from liberalizing foreign direct investment policies and investing heavily to improve infrastructure, to pushing for digitization.
“India’s large and growing domestic market, limited political instability and long-term policy continuity enhance India’s attractiveness to investors,” said Dasgupta. “India’s youthful demographic profile promises good labor availability, which, together with less stringent labor regulations, will help reduce labor costs in manufacturing, in contrast to China.”
The wise management of the Modi administration during the COVID-19 pandemic also helped India avoid inflation issues that most countries in the industrialized world are currently experiencing.
However, rising food prices may ultimately dampen growth this year. India imposed export taxes on onions and banned the export of rice, even as tomato prices rose by more than 300% due to bad weather.
Despite other risks such as decreased labor force participation, Goldman Sachs predicts that India will become the second largest economy in the world by 2075 – Behind China and in front of the United States
The International Monetary Fund expects India to become the fastest growing major economy this year.
Global investors, attracted by such lofty expectations, flocked to Indian stock markets this year.
The benchmark Nifty 50 index has been one of the outperforming indexes this year — up more than 8% year-to-date, compared with a nearly 2% decline for China’s CSI300 index — as global investors look to exit China as its economy falters. The post-Covid-19 recovery has investors concerned about its long-term outlook.
As a result, foreign institutional investors have bought about $17 billion in Indian stocks this year so far, according to Goldman Sachs.
However, the same cannot be said about bond markets in India. Capital controls could limit the ability of Indian companies to raise funds in the future.
India has been excluded from a key bond index due to concerns about inadequate domestic bond settlement systems and the perception that investor registration requirements and India’s capital gains tax system do not meet international standards, Standard & Poor’s Global analysts said.
“Easing rules on Indian companies to raise debt and equity externally and broader sovereign use of major international markets would expand India’s sources of financing,” they said. In a memo dated August 3.
“The speed at which India’s capital markets catch up with the country’s ambitious development plans will depend in part on the balance the government strikes between capital controls and financial stability.”