As disengagement progresses, India may give nod to Chinese FDI proposals

One sector that is all set to benefit from the easing of tensions between India and China over border issues will most likely be India’s automobile industry, which has been in the doldrums after the COVID-19 outbreak.

Media reports said on Monday (February 22) that as India and China entered into “candid, in-depth discussions” to resolve their differences over their borders, the Indian government is likely to give the green signal to 45 investment proposals from China. Two of the proposals — big ticket investments of two Chinese auto majors, Great Wall Motor and SAIC Motor Corp — will likely get the go-ahead soon.

Great Wall Motors has been waiting for government approval for more than a year after grandly unveiling an investment plan of $1 billion in India last year at the Auto Expo in New Delhi. It plans to invest in India in a phased manner in research and development, manufacturing, sales and marketing and, above all, it wants to take over General Motors’ Talegoan plant. The buyout deal of the GM plant is said to be valued at around $250-$300 million, and is seen as a lifeline for the Maharashtra government. Else, the fate of 1,500 workers hang in the balance in an already job-stressed market. Also, there was the threat of the plant being abandoned like the Peugeot plant in Kalyan, near Mumbai.

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Setting up operations in India was the key part of the Chinese company’s plans in India. Great Wall was also considering entering the fledgling electric vehicle space, besides emerging as a strong contender in the thriving SUV space.

However, Chinese troops’ incursions in the western Himalayan region, and the clashes in Ladakh’s Galwan Valley that led to the death of 20 Indian soldiers made India to apply the brakes on Chinese investments in the country. The government said all the proposals from the neighbouring country will be examined closely by an inter-ministerial committee headed by the home ministry.

India framed various policies targeting China, including blocking its companies from participating in government tenders and compelling any Chinese company investing in India to seek approvals. The government also banned dozens of Chinese apps as the clamour for a boycott of Chinese products grew in the country following the Galwan clashes.

The spin-off of this anti-Chinese mood meant that about 150 investment proposals from China, worth more than $2 billion went into cold storage, including that of Great Wall and SAIC Motor.

SAIC Motor had already bought GM’s other facility in Hallol in Gujarat. The Chinese auto major too had drawn up grand plans for India. Besides producing 80,000 vehicles at Halol, it had plans to start a new unit for subsequent launches and introduce its range of electric vehicles as well.

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Sources told Reuters that most of these proposals, which are likely to be cleared by the government, are said to be in the manufacturing sector in sync with the Indian government’s efforts to attract foreign companies to set up manufacturing plants and boost make in India.

Last week, India and China began disengagement from the Pangong Tso area in the Ladakh region of the western Himalayas, after a nine-month-long standoff in the aftermath of the most serious clash between the neighbouring countries since 1962.

Greenfield investment proposals in sectors which are not a threat to national security will be given clearance first, said sources in the government. The government is also considering allowing some investment from Chinese firms in certain sectors via the “automatic” route, or without government scrutiny, said media reports. The officials said investments for stakes of up to 20 per cent in “non-sensitive” sectors may go to the automatic route for nations with which India shares land borders.

India received FDI worth $2.43 billion from China between April 2000 and September 2020.