Home Military China Furious With The US Over Torpedo Sales To ‘Renegade Province’ Taiwan

China Furious With The US Over Torpedo Sales To ‘Renegade Province’ Taiwan

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India is contemplating new restraints on foreign portfolio investments from China and Hong Kong after making government authorisation obligatory for any FDI from seven countries it shares land borders with.

According to reports in ET, the Indian finance ministry is in consultations with the commerce and industry ministry, SEBI and RBI on the planned structure after there were fears in New Delhi when China’s central bank increased its stake in HDFC.

“The Department of Economic Affairs is working on the FPI issue. It is not finalised yet,” a government official told ET.

FPIs from China and Hong Kong may need to go more severe know your customer (KYC) norms at the time of registration and separate mechanisms could be put in place to ensure government clearance for investments in listed entities.

In comparison to FDI, which is a long-term and stable source of funding, FPI is deemed hot money invested in listed shares that are simpler to liquidate and leave. The fear is that Chinese firms could secure stakes in strategically vital organisations at a time when stock prices are unpredictable.

Why India can be the new ‘China’

For decades, China has been dubbed as the ‘factory of the world’, due to its technically advanced manufacturing units, attractive policies for foreign investors and above all, cheap land and labour.

However, industry experts suggest that labour salaries in China are about three times as higher as in India. The entry-level salaries for workers in India usually start between INR 12,000 (US$157) and INR 15,000 (US$196), while in China the salaries as high as three times these prices.

Other than the low cost of labour, India also offers quite fewer costs of operations, modern infrastructure capabilities, special economic zones (SEZs) that attract companies for their duty-free exports and other benefits such as incentives to boost domestic manufacturing, and several business-friendly policies.

By mid-April, the Indian government had strategized high-level meetings to discuss capitalising on the supply chains moving out of China. “India is at a very sweet spot and the Indian government wants to ‘tap’ into this potential,” a government official told media.

Recently, it was reported that India is also readying a pool of land twice the size of Luxembourg to offer companies that want to move manufacturing out of China, and has reached out to 1,000 American multinationals.

In an attempt to draw the supply lines of Smartphone giants such as Apple, Samsung, Oppo and Vivo, the Indian government had informed about three different schemes with incentives worth ₹48,000 crores in March.

“We are seeing India prioritise efforts to attract supply chains, both at central and state government level,” Nisha Biswal, President of USIBC told the BBC. She continued that “Companies that already have some manufacturing in India may be earlier movers in reducing output in plants in China and scaling up in production in India.”

Already having jumped to 63rd position out of 190 other economies in the 2020 Doing Business report by the World Bank, India opens a plethora of opportunities to be explored and exploited.

Before the coronavirus outbreak, a report published in February 2020 by UBS, a financial services company based in Switzerland, said that “given India’s competitive advantage in terms of land and labour availability, exports have always been a big hope historically but it is now seeing a turn as global manufacturers long-settled in China are looking to diversify their manufacturing base. India has scale advantage and key success factors locally are also improving.”

“We are hopeful that once COVID-19 is in control, a lot of things will fructify into actual relocation. And India will emerge as an alternate manufacturing destination. Many countries like Japan, US, and South Korea are over-dependent on China and that is now very apparent,” a government official was quoted in a media report saying.

Competitive Rivals in South Asia

Meanwhile, as India stands a good chance of boosting its economy with China being left out in the cold, many other competitive rivals in South Asia stand firmly to take the vacant spot as well.

“The geopolitical moment may look auspicious, but without overhauling its economic policies India will struggle to keep pace with nimbler rivals like Vietnam and Thailand,” writes Sadanand Dhume for the WSJ.

While, Vietnam has already taken up some of China’s textile and clothing manufacturing, India’s immediate neighbour and once a part of it, Bangladesh also projects as a good contender.

Rupakjyoti Borah reasons that “India is a democracy and a federal one at that, which means that laws differ from province to province, making things difficult for potential investors.”

He continues that “India has many hurdles to overcome, from reskilling workers and ensuring power supply stability, to adding deep seaports and tax breaks. Critically, given the stiff competition, speed is key if India is to capitalise on the supply chains moving out of China”

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