India Faces Capital Flight Due to Foreign Investment Pullout
What unfolded in India’s smartphone market appears to be a farce that may have pushed Modi to the brink. Initially intent on forcibly acquiring half of ViVO's equity in India, Modi’s plans were thwarted when ViVO unexpectedly moved over 60 billion RMB worth of assets abroad. Such coercive tactics alarmed other foreign investors, prompting them to halt investments and withdraw. Is it true, as foreign media suggest, that India’s market environment is indeed inferior to China’s?
“Graveyard for Foreign Enterprises” Faces a Setback
Renowned as a "graveyard for foreign enterprises," India has now stumbled against ViVO.
According to Indian media reports, India's enforcement agency accused the Chinese company ViVO of transferring over 700 billion rupees abroad under the pretext of paying import and export duties via its distributors in India, which translates to approximately 60 billion RMB.
ViVO’s actions have clearly rattled India, and this has dealt a significant blow to the moniker of "graveyard for foreign enterprises." Even giant corporations like Google and Amazon have found themselves reluctantly accepting penalties in India.
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So, why would ViVO risk extortion and jeopardize its presence in the Indian market by transferring such a large sum of money abroad?
The root of the issue lies in India’s long-standing principle of “If you make money in India, you must spend it in India.” As early as June 23 of this year, Tata Group announced its intention to acquire 51% of ViVO India for 10.888 billion rupees.
According to statements from Indian officials, this move aims to bolster the independence and localization of ViVO India. In reality, this is consistent with India's ongoing strategy to suppress foreign enterprises, cloaked in the guise of protecting local businesses and promoting national economic development, but ultimately serving to siphon the wealth and technology of foreign companies through threats and intimidation.
However, it is unlikely that India will take significant actions against a tough player like ViVO.
With its immense advantages in the service and IT sectors, India has soared to become the world’s fifth-largest economy, yet its persistent issues such as pollution and disorder keep it under scrutiny from the global community.
To align with the burgeoning demands in sectors like new energy, smartphones, and semiconductors, India’s requirements in these areas have been escalating. Modi has even stated a goal to make India one of the top five semiconductor manufacturing countries globally within five years.
Thus, to attract foreign investment from global giants in new energy and semiconductors, India is unlikely to hastily retaliate against the ViVO incident.
They are well aware of their poor reputation regarding the business environment; if they further pressure well-known enterprises, even with India's massive market potential and abundant cheap labor, global industry leaders will approach with extreme caution.
China’s Foresight
After abandoning such a vast market, ViVO's export business may dwindle, but this tough approach is likely just the beginning.
The Chinese electric vehicle giant BYD has begun to sound the horn of counterattack.
According to news from India dated October 8, BYD had originally planned to invest in a factory in India, but the review process in India has delayed this project.
Furthermore, China has also intervened. According to Bloomberg, China’s Ministry of Commerce has instructed domestic electric vehicle firms not to export core technologies or invest in India.
In reality, this serves as a precaution for Chinese electric vehicle companies, especially given that Chinese smartphone manufacturers have already faced losses in India.
Undoubtedly, whether it is ViVO’s withdrawal of over 60 billion RMB from India or BYD's postponed factory plans, alongside the national stance on these matters, encapsulates the trend of foreign capital fleeing India.
The Illusion of India as the World Factory Gets Shattered
As a country heavily reliant on foreign capital, India feels the significant impacts of every change in U.S. monetary policy, be it an interest rate hike or cut; this time, it seems India may have been singled out by the U.S. for harvesting.
Consequently, this exacerbates the instability and uncertainty of India's market and business environment, leading to a substantial outflow of foreign capital.
In the past year alone, over 2,800 foreign companies have voluntarily or forcibly shut down their operations in India, with many more considering retreating from the Indian market, including companies like Tesla and Google.
Global electronics industry giant Foxconn has made clear its intention to increase investments in China. It is evident that compared to the "graveyard for foreign enterprises" that is India, China's welcoming attitude towards foreign investment is more appealing.
According to the latest statistics from India's data department, as of September, more than 1,024,000 enterprises have collapsed.
An even greater impact on India was the strike at Samsung’s Indian factory on September 9, where over 1,000 workers participated in protests.
Despite Samsung offering wages 1.5 times above the local average, workers still find them insufficient to sustain their livelihoods.
Although Indian media claims a decision regarding the cancellation of the strike will be made by October 16, this strike incident will have profound effects on India’s overall manufacturing environment, labor market, and wage levels.
Naturally, the withdrawal of foreign capital and the overall malaise in the market continue to dismantle India’s dreams of becoming the world’s factory.
If India fails to instigate change soon, ViVO’s withdrawal could very well be the tipping point for mass foreign capital exodus; in dealing with multinational corporations, a friendly approach is not just essential, but a demonstration of wisdom in fostering one’s own development.
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