The challenges confronting initiatives to boost manufacturing in India could well push the Narendra Modi government to make a U-turn.
Financial Express reported on Monday the government could relax “curbs on investment by Chinese companies in key sectors on a case-by-case basis”.
India began imposing restrictions on investments by Chinese companies in the wake of the standoff in Ladakh in 2020. Concurrently, the Modi government attempted to present India as an attractive manufacturing location as the Donald Trump administration in the US pushed to 'decouple' Western economies from their reliance on Chinese industry.
However, progress in the development of manufacturing in India has been tardy. Financial Express reported, “... there has been a realisation in the top echelons of the government that the success of various production-linked incentive schemes (PLIs) hinges on ancillary industries, which are mainly based in China. Investments by these ancillary firms is necessary for the companies that have been selected under PLI schemes to relocate their manufacturing units from countries like China, Vietnam etc. to India.”
The information technology hardware sector had approached the government over the issue, arguing companies selected under the PLI scheme would find it difficult to set up assembly lines in India for components like battery packs and power adapters as these products are predominantly made by Chinese companies.
“Since PLI is designed for the export market, to set up a manufacturing hub in India, global players need to shift not only their base from external centres, but also the base of their suppliers,” Financial Express reported. The information technology hardware sector was badly hit by the investment restrictions on Chinese companies as the incentive structure for PLI for this sector was low.
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“Since import duties on hardware products are nil as they fall under information technology-I products, manufacturers did not see much reason to relocate their base from China to India. Further, for any relocation of units, Chinese technicians would require visas to travel, where also the government had earlier hardened its position,” Financial Express reported.
The news of a possible relaxation on investments comes at a time when the government remains tough on Chinese business interests. Last week, the government banned 54 apps linked to China on security grounds. The Income Tax Department had also conducted raids on Huawei offices in India in connection with a tax evasion probe.