Allowing Chinese Electronics Companies to Invest:  Also, Pressure from Textile Lobby in Gujarat


Allowing Chinese Electronics Companies to Invest:  Also, Pressure from Textile Lobby in Gujarat

India may be warming up to the idea of allowing Chinese electronics companies to invest in India on a case-by-case basis, relaxing some of its reservations. In the face of lobbying by Indian companies to temper its hard stance, the ministry of electronics and IT (MeitY) recently wrote to Chinese air-conditioner compressor manufacturer Shanghai Highly (Group) Co asking about its proposed investment plans in the country.

This had been planned as a 60:40 joint venture with the Tata Group's Voltas holding the smaller stake. The Indian side had called off the plan last year since government approvals were not forthcoming.


Significant value addition

Shanghai Highly, one of the world's largest AC compressor manufacturers, had responded to the ministry's queries about what's needed to revive the plan, a senior industry executive said.

Voltas, an applicant for the production linked incentive (PLI) scheme for ACs, has since last year been unsuccessfully trying to forge a new partnership after the Shanghai Highly project got stuck. The joint venture was to invest over Rs 500 crore.

In the wake of border tensions, the Indian government has been looking askance at investments by Chinese companies in India. Press Note 3 norms issued in 2020 stipulated that a company based in a country that shares a land border with India (such as China) can invest only after government clearance.

The fate of the Shanghai Highly-Voltas project had forced several Indian companies to shelve plans to partner with the Chinese to build component ecosystems in India.


Shift in the government's stance

There seems to be a shift in the government's stance. Three senior executives at leading contract manufacturers said there have been signals from the bureaucracy that the government may allow some Chinese investment in India with each venture being considered on its merit.

Such a relaxation may be allowed in the hi-tech electronic sector for compressors, display panels and semiconductors if the investment leads to significant value addition in domestic component manufacturing and such technological  skills are not available in South Korea, Taiwan or elsewhere, they said.

The chief of a leading contract manufacturer said the government has conveyed that in such instances the Indian partner needs to have a dominant majority stake in the joint venture.

To be sure, companies expect any movement on this only after the next government takes office in June after elections.


Even in Gujarat’s textile sector, China is a talking point 

There is another trend that needs to be watched. This election season, China is more than just a talking point in Gujarat’s textile city, Surat. The China narrative, writes Nivedita Mookerji (Executive Editor of Business Standard) “has surfaced not just in internal industry chatter, but also quite prominently in stakeholders’ meetings between political parties and businesses….” The stakeholders’ meetings attract anything between 500 and 1,000 business representatives and local politicians.

Series of QCOs or quality control orders: In such meetings, China is being spoken about in a matter-of-fact way. At the centre of it all are a series of QCOs or quality control orders, issued by the Union government. In the last one year, there have been some eight QCOs, including amendments related to technical textiles such as geo-textile, agro-textile and medical textile that are causing concern. The industry has already escalated the matter to the level of Central Ministers.

While QCOs are meant to prevent import of low-quality products, Mookerji writes “the idea is also to block dumping from China at cheap prices and strengthen India’s position in the supply chain. That is bothering the textiles industry, estimated at $165 billion (around Rs 13.7 trillion at the current rate of conversion). As a large portion of the supply of yarn comes from China at cheaper rates, blocking imports from that country has resulted in yarn shortages.”

According to the textile industry, China provides stability in price and quality. "With that gone, it’s a fresh problem for the textile industry, which has gone through tough times in the recent past for various domestic and international reasons. The industry is asking for nothing short of removal of those QCOs, which are resulting in non-tariff barriers on textile businesses. If Chinese products can be allowed in certain sectors, why not in textile, is the question.”

MSMEs view QCOs as a hurdle: Micro, small and medium enterprises (MSMEs) and small weavers, already upset that there’s nothing for them in the textile production-linked incentive (PLI) scheme because of the quantum involved, say that the QCOs are a hurdle they can do without.

The list of orders on quality control talks about complex technical specifications that many of the textile traders may not fully understand. The items covered under the QCOs range from laminated high-density polyethylene woven geomembranes for waterproof lining to clothing made of limited flame spread materials, and the list is quite extensive.

The Bureau of Indian Standards (BIS) oversees the quality standardisation exercise for goods and articles across categories and sectors, from air conditioners to fans to kitchenware and clothes. In fact, central government ministries and departments issue QCOs after consultations with BIS. Any violation of the order can result in heavy penalties and even imprisonment.

There are reports suggesting that this year will see a further expansion of the list, with QCOs tapping some newer areas.

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