India’s Harsh Business Environment Deters Foreign Investment

“Afghanistan is the graveyard of empires, India is the graveyard of multinational corporations.”
Not long ago, someone commented on India’s business environment in this way.
And India did not live up to this sentence. Recently, it has started to work again.
After freezing billions of millet companies, India has focused on another Chinese company, BYD, in the past two days.

01

Less than 2,000 vehicles were sold, and the tax paid 63.6 million

After rejecting BYD’s $1 billion plan to build a factory and build cars some time ago, India has now begun to investigate BYD’s tax issues again.
On August 2, according to media reports, two people familiar with the matter revealed that BYD is facing continuous investigation from India .

The Indian Tax Intelligence Service accused BYD of owed 730 million rupees (about 63.6 million yuan) in taxes.

According to people familiar with the matter, BYD has recovered this part of the tax, but the Indian authorities are still relentless. The investigation of BYD is still ongoing, and additional taxes and fines are likely to be imposed afterwards.
According to foreign media reports, India imposes a 70% or 100% import tax on complete electric vehicles based on the value of the car, and a 15% or 35% import tax on imported auto parts that are assembled locally into electric vehicles. However, the lower import tax rate only applies to imported components such as battery packs or electric motors, not components installed in the vehicle chassis.

The Indian government claimed that BYD’s imported components did not meet these conditions and it was therefore liable to pay import duties of 70% or 100% depending on the value of the car.
It is unclear when the Indian government’s so-called “violation” occurred or how many cars were affected.

BYD entered the Indian market in 2007, and in 2013 began to cooperate with Indian private companies to produce electric buses. According to reports, as of now, BYD has invested more than 200 million US dollars in India. BYD has sold about 1,950 vehicles since it started selling in India in 2022, according to Indian government data.

In other words, BYD has sold less than 2,000 cars in India, and it needs to pay more than 60 million in taxes alone. In terms of black hands, India ranks second, and no one dares to rank first.
Previously, foreign media reported that “BYD will build a joint venture factory in India”. Several people familiar with the matter revealed at the time that BYD’s long-term plan was to produce a full range of models in India and increase the annual output of its factories in India to 100,000 vehicles in the next few years. The Indian media pointed out at the time that if the news is true, this will be BYD’s second factory in India.

But shortly after the news came out, the Indian regulatory authorities rejected BYD’s investment application on the grounds of “investment security”. BYD has since told its Indian joint venture partner that it will shelve the plant plan.

In fact, BYD has long expected that the investment plan will be disturbed by non-market factors, and has already made a compromise in advance.

At the beginning of submitting the application, BYD stated in the document that the electric vehicles produced in India will use the local language in the application. Additionally, all vehicle data will be stored locally in India. However, judging from the results, BYD’s efforts have not gained the trust of the Indian authorities.
It is worth mentioning that BYD is not the only Chinese automaker facing obstacles in the Indian market.

In January 2021, Great Wall Motors plans to acquire GM’s Tarigan plant in India for US$1 billion. This investment covers manufacturing plants, vehicle research and development, power batteries and electric drive systems, vehicle and component manufacturing. At that time, due to the obstruction of the Indian government, the transaction failed in the end.

In May this year, foreign media reported that SAIC was forced to give up ownership of MG India because the Indian government wanted to increase the control of local partners over the company. Although SAIC issued a clarification statement later, denying the rumors, it is an indisputable fact that MG has been frequently scrutinized in India in recent years.

In fiercely competitive markets such as India, huge capital investment and long-term cultivation are required. Many multinational companies have barely operated in India for decades and are still losing money.

02

Although the market is big, it is full of thorns

As the most populous country in the world, India has huge potential in the new energy market. Sales of electric vehicles in India are growing at a rate of 50% per year, and the government is formulating a series of aggressive policies.

For the development of electric vehicles, India has set a target of 30% penetration of electric vehicle sales in private cars, 70% in commercial vehicles, 40% in buses, two- and three-wheelers, and motorcycles by 2030. up to 80%.

The industrialization of new energy vehicles in India started relatively late, and there are currently no enterprises in India that can actually produce power batteries. This has made many multinational car companies see an opportunity, and they all want to enter the Indian new energy vehicle market and get a share.

“Car companies are betting on the future.” Some people in the industry believe that for car companies, if they can win the Indian market, it means opening up a new survival base.
But at the same time, “India is a market full of hope and despair.” As the most populous country in the world, India’s new energy market corresponds to a huge demand, but opportunities are also full of thorns.

The first is the tax issue. Taxation is the first obstacle that car companies face when entering India. India’s tax structure is complex and varied. After various taxes are superimposed, the tax accounts for about 40% of the final sales price of a car on average. Musk has publicly stated that there are great challenges for Tesla to enter the Indian market. “I’ve been told that (India’s) import duties are very high, even for electric cars. It will make our cars very expensive.”
In addition, because there is no unified taxation in various parts of India, “import taxes are charged for cross-state transportation within India.” According to India’s current tariff policy, the tariff range for imported cars ranges from 60% to 100%, and cars with a price of more than 3 million rupees (about 264,000 yuan) face a 100% import tariff.

Musk once hoped that the Indian government would reduce tariffs and allow Tesla to enter through imports to understand market demand, but India insisted that Tesla build a super factory locally. The negotiations have failed for many years, and both parties are unwilling to make concessions.
Secondly, the construction of new energy infrastructure is relatively slow. Although India’s determination to promote the development of new energy vehicles has become increasingly firm, India does not yet have the soil for the growth of new energy vehicles.

“Tesla must build a supercharger station to sell cars in India, but it is difficult to build a local supporting network, including follow-up operation and maintenance.” A Tesla employee once expressed to the media the desire to enter India. worry.

India needs to build 46,000 electric vehicle charging stations by 2030 to meet global benchmarks, according to a consultancy analysis. According to Xinhua Finance, there are currently only 2,826 public charging stations available for electric vehicles in India. That’s not a lot of public charging stations for a country of 1.4 billion people.

What makes car companies even more troublesome is that the policy continuity and flexibility of the Indian auto industry are poor, and the land in India is divided into states, and the market is not unified. This has greatly increased the need for car companies to establish sales channels and provide after-sales services difficulty.

Under various unfavorable factors, if foreign car companies want to get a share of the Indian market, they have to be prepared for a protracted battle and be prepared to be cheated at any time.
Because there are too many lessons in this regard.
03

The cemetery of multinational corporations is not called for nothing

In 2014, India proposed the “Made in India” plan, hoping to follow China’s previous path, attract foreign investment, drive the development of local manufacturing, and become a new world factory.
However, due to the poor business environment and a series of “crimes to be added”, India cannot retain foreign-funded enterprises at all.

According to Indian media reports, from 2014 to 2021, a total of 2,783 multinational companies “withdrew” from India one after another. In recent years, more foreign capital has exited the Indian market than entered it!

According to other data, in 2023, India will only attract one new foreign-funded enterprise, while leaving two at the same time.

Especially after Xiaomi’s 4.8 billion asset freeze and Foxconn’s withdrawal, India’s goodwill and business environment have further declined.

So, here comes the question, since India is so pitted, why do foreign companies rush in?
The answer is simple, the huge market brought about by the demographic dividend.
For foreign capital, facing India, which has a population of more than one billion and huge market demand, seems to have seen China in the past, so many foreign capital regard India as a must-have for military strategists, and hope to be able to Grand plans.
But the reality is regrettable. After many foreign investors entered India, they gradually realized that the situation may be different from what they imagined. India is one of the most difficult countries in the world to do business.

Tax evasion, money laundering, illegal remittance… There is always a suitable for foreign-funded enterprises. If it doesn’t fit, it will be custom made for you.
If you want to increase the number of items, you can increase the tax rate and adjust the tax rate if you want. Today you will be given a discount, and tomorrow the retaliatory tax will be doubled. In 2020, it once imposed a 2% digital tax on foreign digital companies.
In recent years, the number of multinational companies that have been tricked by India is really too numerous to count.

In April 2020, India issued a notice to revise its foreign investment policy, requiring investors from countries bordering India’s land borders to obtain government approval.
To paraphrase a line from “My Hometown and Me”: This is too targeted!
Sure enough, two months later, the Indian Ministry of Telecommunications announced the ban on 59 Chinese mobile apps including Tiktok, WeChat, and Kuaishou; after that, India imposed relevant restrictions on at least seven Chinese companies including Huawei, Tencent, and Ali;
In October 2021, the Ministry of Telecommunications of India will require Chinese mobile phone manufacturers Xiaomi, vivo, OPPO, etc. to provide data and details of mobile phone components;
In mid-February 2022, a surprise tax investigation was launched against Huawei, after which Honor withdrew from India. The reason given by Honor CEO Zhao Ming at the time was: due to well-known reasons.

In May, India froze about 4.8 billion yuan of Xiaomi’s assets on the grounds of illegal transfers (the highest annual profit of Xiaomi in India was only 350 million yuan);
In July, India successively froze the assets and bank accounts of vivo and OPPO brands, requiring huge deposits;
On August 3, India once again accused vivo of allegedly evading taxes of 22.1 billion rupees (about 1.905 billion yuan).

…
In terms of “robbing” foreign companies, India is actually relatively fair. In recent years, it has not been soft on European and American companies:
Microsoft was fined Rs 7 billion, BMW was fined $100 million, IBM was fined $860 million, Nokia was fined $256 million, Samsung was fined $200 million, Walmart was fined $1.35 billion, Amazon was fined $172 million, Google $275 million fined…
From this point of view, it is not aimed at a certain country, but every foreign company in India is a “sheep to be slaughtered” in his eyes.
It’s really India’s money-making Indian flower, and I want to take it home.
The title of “Multinational Enterprise Graveyard” seems to be a sure thing for India, and Jesus can’t stop it.
As far as India’s business environment is concerned, as far as India’s behavior of cheating foreign capital is concerned, whoever goes there should not think twice, and if you are not careful, you will lose everything.

04

An unstable business environment is the best order to evict customers

Changeable policies, tax terrorism, and complicated political situation have made many multinational companies learn a lot of wisdom: Coca-Cola, IBM, General Motors, Google, Ford, etc., all retreat first and respect.
In contrast to China, the foreign-funded enterprises investing in China have a “smooth wind and water” one by one. Since January this year, executives from more than 100 multinational companies have visited China one after another.
According to the data released by the Ministry of Commerce, from January to May this year, the actual investment in China by France, the United Kingdom, and Canada has increased by more than 100%, and the actual investment in China by France has soared by 429.7%.
In the second quarter of this year, Tesla’s global sales exceeded 400,000 vehicles, and its sales in China exceeded 150,000. CEO Musk also returned to the throne of the richest man after a successful visit to China.
Various precedents have shown that in addition to the integrity of the industrial chain, the openness and fairness of the Chinese market and the business environment are the gaps that India cannot make up.
In the final analysis, an unstable business environment is the best order to evict customers. But to create a good business environment, you can’t tolerate repeated fuss.
If there are too many black hands, no matter how large the population is, no matter how big the market is, it will not be able to save the confidence of foreign capital that has collapsed.
This is actually a slap in the face of the “only market theory”: don’t think that if there is a market, foreign capital will not be recruited.
Because foreign capital is not stupid and sweet.