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MNC exits raise concern

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Business Standard Editorial Comment Mumbai
3 min read Last Updated : May 26 2022 | 10:43 PM IST
From Cairn and Hutchison to Harley-Davidson, General Motors, Ford, Holcim, Citibank, Barclays, RBS, and now Metro Cash & Carry, the tally of global giants exiting India or downsizing operations has been growing steadily. In December last year, Commerce and Industry Minister Piyush Goyal told Parliament 2,783 foreign companies with registered offices or subsidiaries in India closed down operations in India between 2014 and November 2021. This is a high number, given that there are just 12,458 active foreign subsidiaries operating in India, according to Mr Goyal’s reply. Each corporation has offered specific reasons for its exit, such as an inability to crack the market (GM, Ford), a strategic shift to green businesses (Holcim), and internal restructuring (Citi). But several have also quit on account of regulatory uncertainties (Cairn, Metro, after 19 years) or high tariff barriers (Harley).

Whether the exits are determined by internal strategic considerations or external reasons such as policy and regulatory ambiguity, the fact that these foreign corporations do not think it worthwhile to stay the course in India, despite the problems, should be cause for concern. They detract from the narrative of India as one of the fastest-growing emerging markets. The pressures imposed by China following its trade war with the US added the opportunity of positioning India as an alternative destination, which Beijing’s current stringent Covid-19 lockdown has accentuated. Yet, though India boasted an all-time high in foreign direct investment in FY22 at $83.57 billion, much of it directed to putative unicorns, under-pressure China saw FDI inflows of $74.47 billion in the first four months of calendar 2022 alone.

Indian policymakers may point to the presence of Apple’s vendors such as Foxconn and Wistron setting up base under the signature production-linked incentive (PLI) scheme, and this is no small achievement. But Apple has committed significant investment in Vietnam and Indonesia too, suggesting that India is not seen as a compelling investment choice. Even the PLI scheme has proven a moderate attraction, beyond telecom. In semiconductors, an integral part of the government’s ambitions to make India a high-tech hub, none of the big names has signed on. And Ford, which had chosen to exit the Indian market last year but stay on to manufacture cars under the PLI scheme, exited the latter as well earlier this month.

Though these piecemeal departures may not add up to a crisis, they nevertheless chip away at India’s reputation as a viable job-creating manufacturing destination. In this context, economic policymakers may want to address several issues outside nationalist ideological frameworks. First, whether the policy of high protective tariffs, the core of the atmanirbhar strategy works for corporations operating within global supply chains. Second, whether a regulatory environment where domestic corporations and the government can ignore international arbitration awards at will sends out the right signals. Though the government backtracked in embarrassing circumstances in the case involving Cairn Energy, the current Future-Amazon saga does little to enhance India’s reputation. Taken together with a “press note”-driven and arbitrary policy on foreign investment in retail, the outlook for India as a stable investment destination is weak, and that translates into huge opportunities lost for its people.

Topics :MNCsBusiness Standard Editorial CommentPLI scheme

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