India needs predictable tax and investment policies to emerge as an alternative for businesses moving out of China due to the trade war, the head of a group representing American companies said.
The group, which counts Lockheed Martin Corp, Boeing Co, and Caterpillar Inc among others as its members, has been pushing for clearance of Chinese-origin goods held up at Indian ports by customs authorities, who have increased scrutiny of imports from China after a deadly border clash between the two nations last month.
As relations between the neighbours worsened, New Delhi banned 59 Chinese apps, including TikTok which had over 200mn of Indian users.
“It is predictability that is critical,” Mukesh Aghi, president of the US India Strategic Partnership Forum, said in an interview through video conference. “Board rooms are saying that if they are getting into a geography they want to make sure that consistency on policy side, and transparency is there.”
Prime Minister Narendra Modi has been separately looking to lure businesses as countries from the US to the UK are considering diversifying supply chains away from China amid trade disruptions caused by the coronavirus pandemic.
While Beijing’s moves to exert more control over Hong Kong and its handling of its minority Muslim Uighurs push countries to consider trade measures, companies are unlikely to abandon the Chinese market completely.
“They will keep on manufacturing in China for China,” Aghi said. “They may look at China plus one strategy.”
While an increased alignment with the US opens up opportunities for India, doing business in the country continues to be tough for foreign investors.
Policy flip-flops in the e-commerce sector and cancellation of contracts by southern state of Andhra Pradesh last year following change in local government sent wrong message to investors.
Rules have been tightened for e-commerce sector which is dominated by Walmart Inc and Amazon.com Inc.
India jumped 14 places to 63 in the World Bank’s rankings on ease of doing business but continues to be overlooked in favour of manufacturing powerhouses like Vietnam despite its 1.3bn-people consumer market, the biggest in Asia after China.
Even at the peak of the US-China trade standoff, a Nomura Holdings Inc report said nations including Vietnam, Malaysia and Thailand were among the clear winners of the trade tensions while India was among those least likely to gain from import substitution.
“It is important to understand that they will not come to India just because it is a potential market,” Aghi said.
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