India is the new China

India's economy wants to decouple from China

India's government wants to realign the country's economy. In the course of the corona crisis, the strong dependency on imports in many key industries - especially on China - became clear. In response, Prime Minister Narendra Modi had the motto in May 2020 Aatmanibhar Bharat, independent India, issued. The aim is to increase local added value in key industries and thus make the country less susceptible to disruptions in global supply chains.

Due to the border conflict that flared up again in June 2020 along the disputed for decades Line of Actual Control (LAC) in the Himalayan region between India and China, this plan has also acquired an even stronger political dimension. India is now primarily aiming to decouple its own economy from China. In the past few weeks, measures have been taken by the Indian side to curb the influence of Chinese companies on the subcontinent.

Approval of investments takes longer

On the one hand, Chinese investments are to be restricted. In April 2020, India's government decided that Foreign Direct Investment (FDI) from states with land borders with India would not benefit from the accelerated approval process as part of the Automatic routewhich do not require approval by the Indian central bank, the Reserve Bank of India (RBI), are excluded.

According to newspaper reports, 50 FDI projects by Chinese companies are being scrutinized. In the state of Maharashtra, three projects with an investment volume equivalent to 600 million euros were temporarily put on hold, including a 450 million euros investment by Great Wall Motors. The automaker wants to assemble sport utility vehicles (SUVs) and electric vehicles for the Indian market in a former General Motors plant near Pune and had announced that it would invest 900 million euros in car production and research and development over the next few years to want.

Financing start-ups is made more difficult

For many startups, the new FDI restrictions could make it more difficult to access venture capital. Chinese tech corporations and investment companies have expanded their involvement in India in recent years and are now involved in a number of large start-ups. Originally, the Alibaba Group financial investor Ant Tech wanted to invest 150 million US dollars (US $) in the Indian delivery service Zomato. Due to the new FDI rules, however, the investment must first be made by the Reserve Bank of India be approved. Other start-ups also fear being cut off from fresh capital.

India not only wants to make investments from China more difficult, but also wants to push back the participation of Chinese companies in infrastructure projects. In July 2020, the government announced that it would exclude joint ventures with Chinese partners from road construction projects. Projects that have already been awarded are to be put out to tender if bidders from China are given a chance. The restrictions could be extended to other areas such as power plant construction and rail transport, the Ministry of Road Transport said.

India relies on import substitution

As a third measure, India wants to restrict imports of Chinese goods and substitute them with locally manufactured products or products imported from other countries. The government has asked business associations to draw up lists of which products India could become independent of Chinese imports in the next two to three years.

The focus is on goods that are particularly dependent on imports from China, such as intermediate products for the pharmaceutical industry, electronic components, electrical household appliances and entertainment electronics, power plant technology and telecommunications equipment. In the last-mentioned segments, India is already one step further: On the grounds that the use of Chinese equipment is endangering national security, manufacturers are to be disadvantaged or completely excluded from public tenders in power plant construction and the planned 5th generation (5G) mobile network become.

Introduction of origin labeling in e-commerce planned

On the electronic public procurement platform, Government e Marketplace (GeM), providers have recently been required to specify the country of origin and the degree of localization of the products registered there. Products with an India share of more than 50 percent should enjoy absolute priority in the award of public contracts. The origin marking is also to be extended to commercial e-commerce platforms such as Amazon, Flipkart or Paytm.

The supply of electronic components comes to a standstill

Although the measures are well received by the population, they pose major challenges for the economy. The decision that all containers from China have to be checked manually by customs in the Indian ports has resulted in the supply of electronic components stagnating and contract manufacturers having to reduce their cell phone production. This could also threaten many other sectors, such as the automotive and supplier industries, if comparable measures are taken here that lead to disruptions in the supply chains.

In the energy and telecommunications sector, companies also fear that a ban on Chinese equipment will drive up investment costs, as no adequate local replacement is available and the prices of products from other countries are higher than those from China. Manufacturers such as Huawei and ZTE account for a quarter of the Indian telecom equipment market of around 1.5 billion euros per year.