The business environment for foreign investors in India has long been perceived as rather hostile, given its strict tax code and the Indian government’s protectionist policies. It is not uncommon for foreign investors to engage in lengthy lawsuits with the Indian government.
According to Li Qin, a lawyer from Link Legal, an India-based law firm, while India has high-standard regulations, government agencies are understaffed and do not offer any guidance on regulatory compliance. “The result is that regulations are seldom and only selectively enforced, and it is very difficult for a foreign business to achieve absolute compliance,” Li told NewsChina.
According to Yang Shucheng, secretary general of the India China Mobile Association (CMA), an industry body that represents the Chinese mobile phone industry in India, the recent investigations were obviously targeted at Chinese brands.
Yang estimates that about 60 percent of Chinese enterprises in the smartphone industry in India have been investigated since December 2021, including smartphone giants and smaller manufacturers. Many believe that the deteriorating relationship between India and China is one reason for the recent crackdown.
Chinese smartphone makers started their forays in the Indian market after Prime Minister Narendra Modi’s government launched the “Make in India” initiative in September 2014, which coincided with the best period of the China-India relationship in recent history.
Within just two years, over 100 Chinese mobile phone and component manufacturers made investments to allow access to the Indian market. Yet as geopolitical tensions between China and India escalated, things changed.
Even before the border clashes between India and China in May 2020, India had already tightened controls on investment from China. In April 2020, the Indian government revised its foreign direct investment (FDI) policy to require all investment from India’s neighboring countries to obtain clearance from the federal government.
The result is that FDI from China to India rapidly declined. According to data released by China’s Ministry of Commerce, China’s FDI outflow to India dropped sharply from US$534.6 million in 2019 to US$210 million in 2020, a drop of more than 60 percent. In 2021, the figure dived to just US$63.2 million.
As China shut its borders to foreign visitors amid the global pandemic, barring students and professionals from India from returning to China, India retaliated by tightening the issuance of visas to Chinese. Not only are tourist visas for Chinese nationals completely suspended, but it is also difficult for Chinese tech firms to send in managerial and technical staff.
Yang said that in the pre-Covid period of 2019, there were over 10,000 Chinese professionals working in Indian offices of Chinese phone makers. Now, only about 1,000 are working in India, although several thousands more are waiting for visa approval.
Chinese smartphone makers have helped the local economy by creating about 400,000 jobs for local workers, Yang said. “But given Chinese brands’ dominant position in the market, the Indian government may think that they haven’t done enough to boost the government’s tax revenues.”