Strategic Shift Or Retreat? Centre Greenlights Chinese Investments To Fuel Electronics Manufacturing

The restrictions on Chinese investments in India through the foreign direct investment (FDI) route appear to be easing, signalling a noteworthy shift in policy given ongoing border tensions.

Recently, an inter-ministerial panel approved five to six investment proposals in the electronics manufacturing sector, including some pure-play Chinese companies and others with connections to China, reports ET.

Among the approvals are Chinese electronics giant Luxshare, an Apple supplier, and a joint venture between Bhagwati Products (Micromax) and Huaqin Technology, where the latter holds a minority stake. Additionally, the approvals encompass Taiwan-based firms with links to Hong Kong.

It is worth mentioning that in 2020, India introduced Press Note 3 (PN3), which mandated prior government approval for FDI proposals from countries sharing a land border with India, including China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan.

The policy was introduced after the Galwan Valley clash in June 2020, and since then, the government had rejected several proposals from Chinese electronics companies, such as Vivo and BYD, which aimed to enter the Indian market.

However, there is now increasing pressure from Indian companies to revisit these restrictions.

The India Cellular and Electronics Association (ICEA), which represents leading mobile brands and manufacturers such as Apple, Oppo, Dixon Technologies, has pointed out that Press Note 3 has effectively halted further investment from Chinese companies in India. This has significantly hindered the shift of the supply chain, thereby impacting domestic value addition (DVA).

For example, a major Chinese manufacturer had initially committed to establishing a plant in India to produce Apple iPads. However, due to the restrictions, the company ultimately moved its operations to Vietnam, where it is now producing $8-10 billion worth of iPads annually.

Notably, the industry body Confederation of Indian Industry (CII), in June this year, also made a case for reassessing India's trade relationship with China to become a global electronics manufacturing hub.

The CII suggested adopting a non-restrictive approach towards investments, encouraging technology transfers in deficient areas, and easing the movement of skilled labour. “Review of Press Note 3 with adequate guardrails should be considered in the current context,” the CII said in its report.

The pre-budget Economic Survey on 22 July also supported increasing FDI inflows from China to enhance India’s participation in the global supply chain and boost exports.

Apparently, the rethink on the part of the government to slowly open up for Chinese investment, with appropriate safeguards, comes as it’s of the view that local value addition must increase to achieve self-sufficiency in electronics manufacturing.

To strike a balance, the Centre has formed an inter-ministerial panel to expedite the approval of Chinese investment proposals, provided they meet specific criteria.

These conditions include ensuring that the investment and technology are critical for developing the local manufacturing supply chain in areas such as high-tech components, barring Chinese nationals from key executive roles, and limiting the Chinese company’s stake to a minority in partnerships with Indian firms.

This policy shift, coming after Commerce and Industry Minister Piyush Goyal stated on 30 July that the Centre had no intention of reviewing the restrictions on Chinese investments, raises many questions.

Nevertheless, if these conditional approvals help India become more competitive and self-sufficient in a China-dominated value chain while safeguarding national security, it is a step worth considering.