US-India trade bodies say investors jittery

New Delhi: Two US-India trade bodies warned New Delhi that business uncertainty stemming from increasing economic tension with China could hurt overseas investor sentiment. Executives of global companies added that restricting trade and other ties with China could hamper India’s bid to offer itself as an alternative manufacturing hub, a key element of the country’s self-reliance initiative.

“This will send a chilling signal to foreign investors who look for predictability and transparency,” US India Strategic Partnership Forum president (USISPF) Mukesh Aghi said in a recent letter to commerce secretary Anup Wadhawan.

Rising tensions led to clashes on the border in mid-June, prompting India to stall imports from China by delaying clearances at ports. That’s been followed by a ban on 59 Chinese apps, including popular ones such as TikTok.

The US-India Business Council (USIBC) sought a closed-door meeting with the Indian government to discuss the changing landscape for trade and investment during this time of “political” and “economic” uncertainty in a recent letter to Guruprasad Mohapatra, secretary, Department for Promotion of Industry and Internal Trade (DPIIT).

Moves such as slowing imports are “creating confusion” in the minds of the investor community, it said. As India aims to become a self-reliant manufacturing hub for the world, there is a need for transparent and predictable policy processes to lay the foundation of that ecosystem, it said.

To be sure, flooded with requests from industry, the customs department has been clearing consignments of some US companies as well as those of Samsung and others. Moreover, import restrictions are expected to be eased on more non-Chinese companies going forward.

The escalating tensions, underscored by the Monday night ban on apps, have left foreign investors from countries including the US, South Korea, Japan and Taiwan nervous, since many from these countries were in the process of shifting their manufacturing capacities and components out of China.

“So firstly, there is an issue of inputs required for manufacturing in India which come from China and then there is the issue of companies which are eyeing India as a destination for manufacturing,” said a US firm’s executive.

Wary of China’s Reaction

The executive of another global manufacturing firm said that it needs to shift not only plant and machinery and equipment worth thousands of crores but also needs a steady flow of inputs and people between the two countries. “We are uncertain of how this will pan out. Will China impose retaliatory economic moves?”

Another senior executive at a global components supplier pointed out that the Chinese government doesn’t make it easy for companies to shift production overseas. “We are subject to rounds of queries by the officials and procedures are made tough for the companies through carrot and stick measures. Now we are wondering if all that will worsen with this escalation of conflict,” he said.

Vivan Sharan of Koan Advisory Group said India is working hard to relocate global value chains from China but the matter “must be handled strategically and stalling imports could erode the trust in Indian market and undo months of efforts to localise manufacturing.”

In its letter, USIBC said items from China are required by local units to feed into global supply chains, particularly those serving Asian and Middle East countries. “Thus, this action undermines efforts around Make in India and GoI (government of India) efforts to attract additional global supply chain investment,” it said.

The government recently announced mega manufacturing and export incentives worth Rs 50,000 crore to attract large smartphone manufacturers such as Samsung and Apple and component suppliers such as Flextronics, Foxconn and Wistron to shift base to India, as it seeks to lower dependence on China and establish its own manufacturing base.

Former commerce secretary Rajiv Kher said China took more than 20 years to become a manufacturing hub and for India to be able to become self-reliant, it would need about five years on an average in targeted sectors. “We will need to pick and choose and till then, we will need imports out of China,” he said.