An undated editorial illustration of Indian rupee cash bills and a stock market indicator board.
Xavier Ghercy | moment | Getty Images
When India suddenly announced an import ban on personal computers and laptops in early August, it caught major suppliers such as Apple, Samsung and Dell by surprise.
By cutting imports from major hardware manufacturers, the move is clearly a part of Prime Minister Narendra Modi’s push to boost manufacturing under his “Make in India” program and position India as a high-tech manufacturing hub for everything from consumer electronics to semiconductors. was associated with the commitment to establish as
Yet, these shades of protectionism appear to contrast with India’s eagerness to shore up its global reputation as the country prepares to host leaders of the Group of 20 leading industrialized and developing economies later this week.
At a time when changing geopolitical alliances are increasing India’s strategic importance, such sanctions add to the contradictions that global investors have to negotiate as they seek viable alternatives to a slowing China. have been
There has also been a sharp increase in protectionism – some of it random. You don’t understand why he did this.
Johns Hopkins University’s School of Advanced International Studies
“I don’t want to call it a mystery of the system, but it’s definitely a bit of a paradox,” said Praveen Krishna, professor of international economics at Johns Hopkins University’s School of Advanced International Studies.
“On one hand, the government has shown keen interest in international investment and setting up manufacturing in India, and has provided a set of incentives for these players to come in,” he added.
“There’s also been a sharp rise in protectionism – some of it happened haphazardly. You don’t understand why they’ve done it and they’re not necessarily powerful industries,” Krishna said.
The new rules – issued on August 3 – restrict the importation of laptops, tablets, “all-in-one” personal computers and “ultra small form factor” computers and servers. They were initially effective immediately, but were later delayed until November.
There are some discounts, including for single purchases from online sellers.
Responding to X, the social media platform formerly known as Twitter, India’s Information Technology Minister, Rajeev Chandrasekhar said The rules were aimed at ensuring that India’s technology ecosystem uses only “trusted and verified” systems that are imported and domestically manufactured, while reducing dependence on imports.
“While this move will certainly improve the position of established domestic players – such as Apple as well as global players with established operations in the country – we are of the view that the introduction of sanctions will impact foreign companies. [information and communications technology] sellers from a demand-side perspective,” BMI Industry Research analysts at Fitch wrote in a note on August 8.
He said the move would increase the final product cost for foreign vendors and shift consumer spending towards Indian companies or established foreign vendors with manufacturing bases in India.
The top three mobile brands in India – China’s Xiaomi and Vivo, along with South Korea’s Samsung – have set up manufacturing bases in the country, suggesting that any new entrant should partner with an experienced domestic player with a manufacturing base. or opt for greenfield investment. market, said the BMI report.
To attract foreign investors, the Modi government in May doubled its initial budget to 170 billion rupees ($2.04 billion) for a production-linked incentive scheme for IT hardware, approved through 2021.
“As I see it, the Government of India could have encouraged local production of laptops [production-linked incentives] without additionally restricting imports in this manner,” Krishna said.
India vs China
In the long term, India is the only market that offers potential scale comparable to China.
Economist Intelligence Unit
“Geopolitical tensions between the US and China, rapid adoption of e-commerce, the COVID-19 pandemic and the Russia-Ukraine war have prompted rethinking of strategies for reorienting sourcing, diversification of supply routes and localization of manufacturing Is.” Sumedha Dasgupta, senior analyst at the Economist Intelligence Unit, told CNBC.
“Southeast Asian economies such as Vietnam have so far been the major beneficiaries of supply chain diversification. However, India is increasingly well-positioned to capitalize on these trends because, over the long term, India is the only single market offering the potential scale compared to China,” she said.
To be sure, Modi’s government has done much to strengthen India’s economy in the decade that his ruling Bharatiya Janata Party has been in power – from liberalizing foreign direct investment policies and improving infrastructure. From making huge investments to pushing towards digitization.
“India’s large and growing domestic market, limited political volatility and long-term policy continuity enhance India’s appeal to investors,” Dasgupta said. “India’s young demographic profile promises good availability of labour, which coupled with less onerous labor regulation, will help keep manufacturing labor costs in check, unlike China.”
The prudent management of the Modi administration during the COVID-19 pandemic has also helped India avoid the inflationary issues currently plaguing most of the industrialized world.
However, rising food prices could moderate the growth rate this year. India has imposed an export tax on onions and banned rice exports, while tomato prices have soared over 300% due to unfavorable weather.
cap on investment
Despite other risks such as declining labor force participation, Goldman Sachs expects India to become the world’s second largest economy by 2075 – behind China and ahead of the US.
The International Monetary Fund has predicted that India will be the fastest growing major economy this year.
Attracted by such high valuations, global investors have also invested in Indian equity markets this year.
The benchmark Nifty 50 index has been one of the better performers this year – rising more than 8% year-to-date, while China’s CSI 300 index declined nearly 2% – as global investors took a jibe at China’s wobbles. Thinking of getting out of it because of. The post-Covid recovery has investors worried about its long-term forecast.
As a result, foreign institutional investors have bought nearly $17 billion in Indian equities so far this year, according to Goldman Sachs.
However, the same cannot be said about India’s bond markets. Capital controls may limit corporate India’s ability to raise funds in the times to come.
India has been excluded from a major bond index due to concerns over potential inadequacies of domestic bond settlement systems and investor registration requirements and the perception that India’s capital gains tax regime is not in line with international standards, S&P Global analysts said.
“Easing of rules for Indian companies to raise debt and equity externally and wider sovereign access to key international markets will expand India’s funding sources,” he said in a note dated August 3.
“How quickly India’s capital markets keep up with the country’s ambitious development plans will partly depend on the government’s balance between capital controls and financial stability.”