News & Analysis

Indian Electronics Companies Seek Clarity on FDI with China

An apex association representing this group believes that allowing smaller component makers from China to set up shop will deepen India's manufacturing ecosystem

At a time when New Delhi and Beijing are showing early signs of a thaw in their border talks around Ladakh, a group of companies engaged in electronics manufacture has sought clarity on India’s FDI policy so that smaller component makers from across the border can be allowed to set up base in the country. 

This representation has come from the Indian Cellular and Electronics Association (ICEA) which believes that by getting FDI from smaller Chinese component makers, India’s manufacturing ecosystem in the electronics sector could become more globally competitive. Towards this end, they believe clarity in the FDI policies applying to neighboring countries is a must. 


A direct petition to the PMO

The ICEA has reportedly petitioned the Prime Minister’s office directly seeking to clarify the FDI policy to facilitate shifting of companies that can help create the ecosystem and get investments to facilitate skill enhancements that is a prerequisite for the sector’s growth. It also nudged the government to clear all dues under the production-linked incentive (PLI) scheme. 

The letter from ICEA chairman Pankaj Mohindroo comes at a time when the government has cracked down on some top Chinese smartphone brands for alleged money laundering. ICEA specifically refers to the policy that enables shifting of global value chains to India and suggests that lack of clarity will only hurt the operations of companies seeking to move. 


What is the dichotomy? 

ICEA refers to the government’s order dated April 17, 2020 that limited FDI inflows through the government route with requisite approvals and was a result of the border tensions between India and China during that period. The purported aim of that order was to discourage investments from Chinese companies in India over security reasons.

However, around the same time the government also announced the PLI schemes on electronics manufacture that included smartphones and IT hardware. The scheme aimed to attract global manufacturers based in China over to India, but for this to happen, component makers from across the border also need to shift to India, says the association.

“Given the dependency on China for finished products, especially IT hardware, it is impossible to create a relocation pathway to deepen GVCs in India, without tier 2 and 3 manufacturers for finished products, sub-assemblies and components from China,” the letter says adding that in the short to medium term, such movement needs to be encouraged and facilitated. 


Support for Chinese companies

The latest move from ICEA comes at a time when the government has removed Huawei and ZTE from India and is investigating possible foreign exchange violations of market leaders such as Xiaomi and Vivo. 

On the payment of PLI dues, the ICEA sought a “timely closure of processes for evaluating the PLI disbursals and early payment of dues under such schemes. This comes at a time when the government is reviewing invoices raised by some companies manufacturing smartphones in the country under the PLI scheme. 

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