On September 11, the website of the United States Wall Street Journal published an article entitled "Can India Stop the Rich from Fleeing?" article. According to the article, although India's stock market in the past two years is objective, the actual situation has violated the laws of economics, resulting in foreign investors not only not actively participating in the participation, but also withdrawing and selling India stocks.
Objective data is equally pessimistic, with India's foreign capital inflow this year being only $2.6 billion, compared with $22 billion in the same period last year. All this is a sign that India's economy seems to be on an irreversible downward spiral, and its manufacturing malaise is far from Modi's goal of a "new world factory".
In order to boost the domestic economy, Modi has recently planned to lift restrictions on China to attract Chinese companies to invest in India, but will Chinese companies still eat India today? What is the reason why the world's capital is afraid that it will not be able to withdraw in large numbers?
Dreams and Reality in India
India's manufacturing and economic take-off in recent years has largely benefited from the large-scale entry of foreign capital. India has abundant and low demographic dividends and a domestic demand market with huge potential, which are not only the key support for future economic development, but also the key factors to attract foreign direct investment.
From 2000 to 2022, India's FDI (foreign direct investment) inflows soared 20-fold, with a cumulative inflow of $847.4 billion during the period, mainly due to the government's favorable policies and open markets.
However, the hypocrisy did not last long, and the cover was not long. When the superficial false dividends faded, India's poor market environment and highly targeted rule of law regulations immediately made many foreign-funded enterprises feel pain and retreat.
According to the Reserve Bank of India, India attracted a total of US$84.8 billion in foreign investment in 2021, which fell to US$71.4 billion in 2022, US$71 billion in 2023, and only US$2.6 billion so far this year.
In these three years, the outflow of foreign capital from India was US$28.6 billion, US$29.3 billion and US$44.4 billion respectively. In April this year, the India government also confidently formulated a very ambitious foreign investment plan, and Industry Minister Singh said: In the next five years, India will absorb 100 billion US dollars of foreign investment every year!
However, India not only did not achieve this goal last year, but even a fraction of the goal this year is very likely to be missed. In fact, India is now facing not only the difficulty of attracting foreign investment, but also how to retain foreign investment.
Since India tightened monetary policy in 2022, a staggering Rs 9 trillion has been withdrawn from India.
From 2024~2021, a total of 2,783 multinational companies will close their companies in India. In 2022, 7,500 millionaires left India, why is the India market no longer popular?
The first reason is that India's economy is not healthy, India has a large population, and it seems that the demand is huge and the potential is unlimited, but the extremely unbalanced income structure and the large scale of the poor population actually seriously restrict India's consumption growth. In 2023, 50% of India's population over the age of 15 will belong to the poor class with an annual income of less than $1,500, and only about 120 million of the 1.45 billion people will belong to the consumer class with an annual income of $15,000.
This year, Statistics India released the quinquennial household consumption expenditure survey, and the results showed that (the following data are converted to RMB) India's per capita monthly consumption in 2023 will be 403.18 yuan, equivalent to 18% of China's. And in India's consumption structure, food and miscellaneous energy account for 3/4 of the total retail value, which means that India's 120 million consumer class is actually spending most on food and clothing.
In 2023, Mercedes-Benz will sell 737,000 units in China, but only 18,000 units will be sold in India, and BMW's India market volume is only 2% of China. These data intuitively show that India's socio-economic situation is far from being as brilliant as it seems on paper, and the advertised GDP has been growing year after year, but I don't know how much water it actually contains.
The second point is the extreme behavior of the India government, in fact, India's business environment has long been notorious, and in the past two years, it has been rated as a "foreign capital cemetery" by the world. According to the World Bank, the average length of time to register a company in India is 18 days, which is more than double the average for OECD countries. And after registration, there are 12 cumbersome procedures, and the whole process will take at least 110 days.
Once a commercial dispute arises, the average processing time of the courts in India is 1445 days, which is 4 years to resolve a case. This is such an amazing efficiency that the Office of the United States Trade Representative directly described India's trade policy as opaque and unpredictable.
The government's inefficiency is only the tip of India's business problems, after all, the real large foreign investment will provide special channels, and the India's arrogant and domineering fine policy really makes many foreign veterans feel terrified. Under the three-pronged axe of tax evasion, tax evasion and non-compliance verification in India, almost any foreign-funded enterprise cannot escape the poison.
The future of India
The first is Xiaomi, the representative of Chinese enterprises, in 2023, Xiaomi was frozen by the local government for allegedly violating India's Foreign Exchange Management Act, 4.82 billion yuan, which is almost more than half of Xiaomi's annual net profit. In 2022, vivo was searched by the department for allegedly evading taxes of 1.89 billion, and was also accused of violating the "Prevention of Money Laundering Act", as a result, 119 bank accounts of vivo were directly frozen.
In 2008, Shanghai Electric advanced 1.311 billion US dollars in a friendly and cooperative attitude to build six 66 kW power stations in India. As a result, instead of receiving any payment back after the power plant was put into operation, Shanghai Electric was sued by the government for environmental pollution and demanded a fine of 2.1 billion yuan in almost extortion.
Samsung was fined $200 million in taxes in 2014 and more than $100 million last year for environmental violations. Apple is also trembling about this, as early as 2022, Apple was fined 1.1 billion yuan for monopolizing stores. In addition, internationally renowned giants such as Google, Vodafone, and Amazon have been planted in India's hands, which has also caused strong concerns about India's investment environment.
Seeing that it has failed to attract foreign investment, India is now setting its sights on Chinese companies. At the Davos forum in January, Singh said India would likely lift the four-year-old restrictions on Chinese companies. In July, the Ministry of Finance of India directly pointed out in its annual economic report that if India's manufacturing industry wants to achieve long-term development, it must either deeply integrate China's supply chain or attract more Chinese companies to invest.
But is India really suitable for foreign investment? If India lifts restrictions on Chinese companies in the future, will we really continue to build factories in India? The answer is no.
Liang Haiming, dean of the Belt and Road Research Institute of Hainan University, expressed his opinion, he believes that the investment environment in India is not ideal, many government officials have malicious intentions towards businessmen, believing that businessmen make money through illegal and criminal means, and distorting values has a long-term serious impact on the majority of foreign investment.
Second, India's economic development and environmental protection have long been in conflict, as Korea's POSCO planned to spend US$12 billion to build a steel plant in a forest area in India, which was highly valued by the government and environmental permits were quickly approved. However, the local people strongly opposed the implementation of the project, and the so-called law did not hold the public accountable, and as a result, the steel plant was shelved for ten years.
After the realization of the Chinese dream, India also hopes to complete the India dream of the world's factory through the economic growth model of investment + export. However, the reality is that although India has attracted most of the foreign investment through policy promotion in the past two years, it is difficult to reverse the problems of India's structural imbalance, social culture and low quality.
More serious is India's chaotic multi-party political democracy, which will be the biggest factor hindering India's economic growth, as former Singapore Prime Minister Lee Kuan Yew commented: India is not international, but a collection of 32 ethnic groups built along the railroad of the United Kingdom.
So can India's dream of a world factory come true? It should be extremely difficult, and Viet Nam in Southeast Asia is now the sweet spot of the global low-cost industry. Can India save the loss of foreign investment? It should be difficult to achieve, India's current poor business environment is unpopular, and the social structure problems are difficult to solve, and the prospects are confusing.
Information sources:
Time Weekly: Global foreign capital that has been "beaten" in India! In 5 years, 559 foreign companies withdrew
Peking University Sino-foreign People-to-People Exchange: [In-depth Analysis] Liang Haiming: Is India suitable for enterprises to invest?
Wall Street News: Entering the "Modi 3.0" Era: The Current Situation, Opportunities and Challenges of India's Economy
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