Ministry of Foreign Affairs of the P.R.C Key Cooperative Research Institute for Policy Studies (2022-2024)

Lin Minwang, "India's business environment hurts both foreign firms and its own economy"


(Source:Global Times, 2022-8-9)

Many multinationals have chosen to withdraw from the Indian market or reduce their investment and production line footprint in the country. From the Ford Motor, General Motors, Harley-Davidson Co, which announced earlier that they would withdraw from the Indian market, to Citibank, Holcim and other companies that recently announced that they would reduce or adjust their investments, these multinationals have all shown disappointment with the Indian market.

This is not the first time that foreign companies have headed to the door in the Indian market. In 2013, companies such as Walmart from the US and Posco of South Korea announced that they will abandon their investment projects in India. At that time Indian media outlets were full of grievance and sarcasm against the Singh government.

The Modi government, which pledged to promote economic reform and opening-up, also does not help India get rid of the old problem on its economy. While the Singh government faced political obstruction to fully promote economic reform, the Modi government faces no political rivals that can hinder their reform process.

After Modi came to power in May 2014, he indeed carried out some dramatic reforms in economic policies, which improved India's business environment and stimulated people's interest in the Indian market and development prospects. India's huge market, growing middle class, cheap labor, and relatively robust economic growth have led many multinational companies to expect India to become a global factory like China.

However, by the end of 2018, Modi's government began to increase tariffs on a large scale, from an average tariff of 13 percent to 20 percent, so that then US President Donald Trump criticized India as the tariff king. The Modi government's policies are also increasingly moving toward domestic protectionism.

After Modi began his second term in 2019, his government ran counter to economic opening, and India finally chose to withdraw from participating in the Regional Comprehensive Economic Partnership (RCEP). In India, the Modi government has carried out various degrees of economic blackmail against foreign-funded enterprises on the grounds of national security and tax review. After the outbreak of the COVID-19 pandemic and clashes at the Galwan Valley in 2020, India took advantage of the background of international political games to target Chinese companies and took various methods to disrupt, crowd out and extort Chinese companies.

Although the main targets of India's crackdown are Chinese-funded enterprises, it also exposes the poor business environment in India as a whole. It is not only Chinese companies that are hurting, but companies from all countries. From the Singh government to the Modi government, India's business environment has not changed substantially. What is also exposed is the government's systemic corruption, lack of respect of market rules, and arbitrary economic policies. In the end, foreign companies chose to withdraw from India.

However, India knows well how to play the geopolitical card to cover up the backward in its economic policy. The reason given by India for withdrawing from RCEP was its reluctance to participate in a China-dominated trade bloc. India has aggressively cracked down on Chinese companies and excluded Chinese companies from joining the Indian 5G market under the pretext of protecting India's national security. At the same time, India is actively cooperating with the US and the West clamoring for an economic decoupling from China, trying to take over the companies and industrial chains transferred from China.

India withdrew from the Asia-Pacific multilateral trade agreement and turned to promoting the signing of bilateral free trade agreements with US allies. In addition to signing free trade agreements with Australia and the United Arab Emirates, India is stepping up negotiations with the UK, Israel, Canada and the EU to restart free trade agreements. Instead of choosing to deeply integrate into the Asia-Pacific economic circle, India seeks to integrate into the US-led economic system.

It is just that the business behavior of American and Western multinational corporations does not fully follow geopolitical logic. Even though the US, Europe, Japan and Australia regard India as a strategic partner, their companies do not regard India as a good investment market, and choose to either reduce their investment in India or withdraw from India. Between 2019 and 2021, foreign direct investment inflows to India fell instead of rising. Such a result seems to be unwilling to be seen by many Indian strategists. Whether India's economy rises or not depends more on India's own political and economic logic, rather than the geopolitical logic that the US is trying to dominate.

The author is professor with the Institute of International Studies at Fudan University.