Navigating India's FDI Landscape: Opportunities and Challenges for Chinese Investors
Navigating India's FDI Landscape: Opportunities and Challenges for Chinese Investors
I. Introduction
Press Note 3 of 2020(P.N. 3 of 2020), a regulatory policy issued by the government of India on April 17, 2020 and currently still in force aims to regulate the foreign direct investments from land bordering nations, notably China, Pakistan and Bangladesh.
The P.N. 3 of 2020 mandated that any investment originating from China from April 17, 2020 would necessitate approval from the Indian government to invest in any sector in India. Further, the policy within itself provided that if a beneficial owner of any investment is situated in China or is a citizen of China then the investment would also require approval from the Indian government. The intention behind the government to enforce PN 3 of 2020 was that Chinese entities / Chinese investors were undergoing opportunistic takeover in those companies and sectors that earlier required no government approval.
This Article will provide an analysis of the nature of investment which have been approved by the Indian government despite P. N 3 of 2020 being in force and in which sector a Chinese entity or a Chinese investor invest in India where there would be fewer delays and regulatory hurdles before an investment is formally approved. Further, though the PN3 of 2020 applies to the land bordering nations to India,this article will provide insight to the reader concerning the relations between India and China in terms of it's Foreign Direct Investment (FDI)
II. Recent Developments
In recent years, from April 17, 2020, since the introduction of PN3 2020 there have been notable investments from Chinese entities, where proposals worth INR 1 trillion where 50% of these investment proposals have been cleared, this data indicates that India has not completely deterred investment originating from China or any Chinese entity.
Since the past few months, the Indian government has provided approvals for joint ventures involving Chinese firms, provided that the Indian partner exercises either a majority stake or a controlling stake in the joint venture.
The investments from China which have been approved by the Indian government mainly concern investment into the automotive sectors and smartphone manufacturing industry. The investments in these sectors have further strengthened the economic relationship between the two countries.
III. Notable Examples of Joint Ventures
Several joint ventures between Indian and Chinese companies have made headlines, showcasing the potential for collaboration:
1. MG Motor India and SAIC
In 2017, SAIC Motor, China’s largest automaker, entered the Indian market through a joint venture with MG Motor India. The partnership has proven to be successful, with MG Motor India launching several models that have gained popularity in the SUV segment. This joint venture exemplifies how Chinese companies can leverage their industrial automotive expertise to enter into the Indian market.
2. Sunny Opotech and Indian Partners
In 2022, the Indian government announced a joint venture project involving Sunny Opotech, a Chinese firm specializing in optical components, and an Indian company to manufacture camera modules in India. This venture aims to enhance local manufacturing capabilities and reduce dependence on imports. Sunny Opotech, a part of the larger Sunny Optical Technology Group has a history of producing optical devices including camera modules for major smartphone brands. This collaboration is expected to not only bolster India's manufacturing sectors but also foster technological advancements in the optical component industry.
3. BBK Group's partnership with Dixon Technologies and Karbonn Group
The Indian government is encouraging Chinese companies to engage in discussions with local Indian firms to increase the volume and production of smartphones in India. Recently, BBK Group, a Chinese leading smarphone marker formed apartnership with Indian manufacturers, namely Dixon Technologies and Karbonn Group to increase the production and sale of leading smartphone brands- Oppo, OnePlus, Realme, iQoo, and Vivo.
4. Vivo, Oppo and Indian manufacturers
Chinese smartphone giants - Vivo and Oppo have engaged in discussion with Indian firms to establish joint ventures for manufacturing and distributing their productsin India. As per the latest news reports, Vivo and Oppo are currently having discussions with Doxon, Bhagwati Products ( (Micromax) and Lava International to increase the volume of their smartphone production in India. Meanwhile, Vivo's manufacturing unit in the state of Uttar Pradesh is taken over by Bhagwati Products (Micromax) which has initiated hiring employees and is inprocess to start producing smartphones for Vivo.
5. Tata Group and Vivo
India's biggest conglomerate Tata Group is in advanced talks with Vivo to acquire a majority stake in the Indian unit of the Chinese smartphone maker, as Vivo is currently looking for Indian firms to boost its local production of its smartphones in India. This deal is yet to materialize and will come into operation soon.
6. Government nod to Haier Appliances India
Hae rAppliances in November 2021 sought approval from the government to invest INR184 crore in AC component manufacturing, the company was approved by the government recently after almost two and a half years.
IV. Faster Approval for FDI
The Indian government is considering adopting a nuanced approach to grant approval of FDI originating from China. The sectors where the government is planning to ease FDI from China are those engaged in the production of high-end technologies, specifically engaged in production of Battery Electronic Vehicles(BEVs)and E-Vehicles (EVs).
The government intends to enter into the electronic vehicle space and have a marketsize EVs of $ 48.6 billion on its roads by 2030. The government believes that this projection cannot be attained unless it adopts a nuanced and liberal approach to approve FDI from Chinese firms which have domain expertise and skills which could help India to achieve this global milestone. Further, at the moment the government is more focused towards approving FDI originating from China mainly in these sectors for the production of BEVs and EVs
V. Visa Procedures being Streamlined
The Indian government has introduced a streamlined and a time-bound procedure to grant business visas to Chinese technicians whose expertise is required in key manufacturing sectors, involved in Production Linked Incentive (PLI) scheme.The PLI scheme launched in March 2020, aims to boost domestic manufacturing by providing benefits to companies based on the incremental sales from products manufactured in India.
According to the new regulations effective from August 1, 2024, once a company applies for an e-visa, the application shall be forwarded to the relevant government department and the Ministry of External Affairs (MEA) and the Ministry of Home Affairs (MHA) for their approval. The response as to whether the visa is rejected or approved shall be provided to the MHA within 28 days from the date of application of the e-visa and the validity of the visa shall be of six months and the entire procedure to grant visa shall be completed within 45days.
The initiative to streamline the grant of business visas aims to reduce delays in visa-related matters that have impacted the domestic production sectors engaged in solar photovoltaic modules, specialty steel, white goods and electronics.
VI. Future Prospects
The P.N 3 of 2020 has imposed notable challenges mainly regarding approval timelines and sectors where the approval is being granted, these selective approvals indicate a willingness to foster beneficial investments. The current economic relationship in the form of a joint venture partnership has proven to be astrategic approach to mitigate risks while enhancing the economic partnership between the two countries.
VII. Conclusion
P.N. 3 of 2020 has impacted the landscape of Foreign Direct Investment (FDI) from China into India. However, despite the stringent regulatory framework the Indian government has approved foreign investments, particularly those involving joint ventures where Indian partners hold a majority stake and a controlling stake.
The streamlined visa procedures and the nuanced approach towards approval in certain sectors reflect a pragmatic strategy that will strengthen the economic relationship between the two countries. These developments have led to a significant shift in the regulatory standpoint of Indian government since the adoption of Press Note 3 in 2020, thus leading to a collaborative economic partnership between the two countries.
