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India Clears 45 Investments from China, Worth Billions, Amid Sour Ties and More Competition for Foreign Investments

SCMP, February 22, 2020

 

The SAIC Motor factory in Shanghai, February 22, 2021

 

India to clear 45 investments from China worth billions amid sour ties: sources

Most of the 45 proposals are said to be in the manufacturing sector, which is deemed non-sensitive in terms of national security Some 150 Chinese investment proposals worth over US$2 billion were held up amid sour ties, with firms from Japan and the US also caught in the crossfire

India is set to clear 45 investment proposals from China, government and industry sources told Reuters, as military tensions between the two countries ease at the disputed border.

The proposals, which are likely to include those from Great Wall Motor and SAIC Motor Corp, have been held up since last year after India tightened controls on Chinese investment in the country in retaliation against alleged Chinese troop incursions in the western Himalayan region. China blamed Indian troops for the stand-off.

About 150 investment proposals from China worth more than US$2 billion were stuck in the pipeline. Companies from Japan and the US routing investment through Hong Kong were also caught in the crossfire as an interministerial panel led by the interior ministry increased scrutiny of such proposals.

A federal Home (Interior) Ministry spokesman did not respond to a request for comment on the proposals to be cleared.

Two government sources who have seen the list said most of the 45 proposals set for early approvals are in the manufacturing sector, which is considered non-sensitive in terms of national security.

The sources did not elaborate but two other government officials and two industry sources who are privy to the process said proposals from Great Wall and SAIC are likely to be on the list.

Great Wall and General Motors (GM) made a joint proposal last year seeking consent for the Chinese carmaker to purchase the US company’s car plant in India, in a deal expected to be valued at around US$250 million to US$300 million.

Workers at a car yard outside the Great Wall Motors assembly plant in Baoding, Hebei province. File photo: AP

Great Wall, which plans to invest US$1 billion in India over the next few years, said earlier that establishing operations in the country is a key part of its global strategy. It had planned to start selling cars in India from this year, and was also mulling bringing in electric vehicles.

Great Wall said it continues to seek relevant approvals and investment clearances.

“Should we be granted all relevant approvals, we will push all work forward in India, abiding by the laws and rules laid down by the Indian government,” a company spokesman said.

A GM spokesman added: “We continue to seek all relevant approvals to support the transaction.”

SAIC, which started selling cars in India in 2019 under its British brand MG Motor, has invested around US$400 million of the nearly US$650 million it has committed to India and would need approval to bring more investment.

SAIC’s India unit did not respond to an email seeking comment.

The change in the Indian government’s stance follows an improvement in the border situation. Troops who were in eyeball to eyeball confrontation in territory claimed by both sides have been withdrawn, the two countries announced on Sunday.

The plan going forward is to split up over 150 proposed Chinese investments into three categories depending on the risk to national security, the sources said.

Sectors such as automobiles, electronics, chemicals and textiles are seen as non-sensitive whereas those involving data and finance are deemed sensitive, consultants and lawyers have said.

Proposals from non-sensitive sectors will be approved faster, while those seen as “sensitive” will be reviewed later, one of the government sources said.

India to clear 45 investments from China worth billions amid sour ties: sources | South China Morning Post (scmp.com) 

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Can Modi beat China in the FDI game? India’s tax dispute with Cairn Energy might hold the answers

India’s finance minister and the British firm’s CEO are meeting on Tuesday to discuss the US$1.4 billion New Delhi is liable to pay Cairn A cordial solution to the long-running wrangle over retrospective taxation will assure potential investors and help position India as an alternative to China

Vasudevan Sridharan

SCMP, 16 Feb, 2021

When I ndia ’s finance minister Nirmala Sitharaman meets the CEO of British firm Cairn Energy on Tuesday, the outcome of their talks will have a bearing on the South Asian nation’s ambitions to lure  foreign direct investment  (FDI) and position itself as a viable destination for firms looking for an alternative to China.

Simon Thomson and Sitharaman will discuss the US$1.4 billion that New Delhi is liable to pay Cairn, after it won in December an international arbitration case over a tax dispute based on retrospective tax claims that international investors found alarming.

The Indian government had in 2012 changed the tax code to give it more authority to claim taxes from companies for deals struck years ago, as long as the underlying assets were in India. In 2014, authorities demanded 102 billion rupees (US$1.4 billion) in taxes that it said Cairn owed on capital gains relating to a 2007 listing of the firm’s local unit.

After the international tribunal ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty, Reuters reported that Cairn was taking steps to identify Indian assets overseas against which it could enforce the award, while Indian news agency Press Trust of India subsequently reported that New Delhi could consider giving the firm a surrendered oilfield in lieu of payment.

Officials from the Indian finance ministry declined to comment when approached by This Week in Asia.

Thomson is flying to India to meet Sitharaman in person. As per the latest protocols in New Delhi, travellers from Britain are exempted from mandatory quarantine if they test negative for Covid-19 72 hours before departure and undergo another test on their arrival.

Nirmala Sitharaman, India’s finance minister (centre) will meet Cairn CEO Simon Thomson on Tuesday. Photo: Bloomberg

In a video message before the talks, Thomson said he believed the firm could cooperate with the government and come to a conclusion. “[This will] reassure our global institutional investors about the positive investment climate that India offers,” he said.

Last September, India lost an arbitration case against telecoms giant Vodafone over a US$2 billion retrospective tax claim, after a tribunal found the claim was in breach of an investment treaty between the country and the Netherlands.

New Delhi is challenging the verdict, but Dinesh Kanabar, CEO of Mumbai-headquartered Dhruva Advisors and an international tax expert, said the cases were “needlessly impacting the image of the country as a tax-friendly jurisdiction”.

“The negative publicity that these two rulings are giving is not worth any potential tax collections,” he said.

Indeed, with the Covid-19 pandemic battering the Indian economy – which is expected to contract by 7.7 per cent in the financial year ending March, the biggest fall it has ever recorded – New Delhi is desperately seeking more foreign investment to create new jobs, especially from companies seeking to diversify manufacturing operations away from China.

It has also moved to open up other sectors – earlier this month, Sitharaman said the government would allow more foreign direct investment in the insurance industry, in a move that could woo inflows from US and European companies.

In the budget announced on February 1, New Delhi also unveiled special outlays for sectors such as manufacturing, infrastructure and textiles – areas that are often magnets for foreign investors.

Besides relaxing FDI norms in sectors such as coal mining, contract manufacturing, and single-brand retail trading, the government last year increased the FDI cap for the defence sector from 49 per cent to 73 per cent. It has also been ironing out some of the compliance burdens to ease the business environment.

India last September lost an arbitration case against British telecoms giant Vodafone over a US$2 billion retrospective tax claim. Photo: AFP

India has registered FDI growth every financial year since 2015-16, with FDI equity inflows reaching a milestone US$500 billion for the period between April 2000 and September 2020. Despite a raging global pandemic and crippling lockdowns across the world, the country received more than US$30 billion in FDI in the first half of the financial year ending March 2021.

While FDI globally fell by about 42 per cent last year from 2019 due to the pandemic, India and China bucked the trend, with FDI inflows rising by 13 per cent and 4 per cent respectively, according to the latest figures from the United Nations Conference on Trade and Development.

China remains the world’s largest FDI recipient, attracting US$163 billion last year, while India drew investments chiefly in the digital sector.

Experts agree that a cordial solution to the ongoing dispute with Cairn would help India make its case to potential investors, who have often felt deterred by its unpredictable regulations and red tape, such as the need to produce extensive documents for exporting goods.

Mukesh Aghi, president of the US-India Strategic Partnership Forum, a non-profit organisation, said there were benefits to be had for India as more companies looked for a “China plus one” strategy.

“India is a potential site for them … both China and India have the rule of law but China’s is not as transparent as India’s. Though the Indian proceedings can be slow, they are transparent. To me, that’s a big advantage India has to sell to the global investors,” he said.

“The government of India has an opportunity to convey this message, especially to companies which are looking at destinations alternative to China as an investment strategy. Trying to settle on the arbitration judgment will send a strong message that the government means business. It will definitely raise the confidence of the investors.”

David Sloan, a principal at global business advisory firm The Scowcroft Group, said it would be a positive signal if New Delhi agreed to resolve the issue with Cairn.

“It would send a message that the tax terrorism is behind us. The more that the [Indian] government dallies on trying to resolve this, the bigger the hole it digs for itself.”

Can Modi beat China in the FDI game? India’s tax dispute with Cairn Energy might hold the answers | South China Morning Post (scmp.com)

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