According to reports, India intends to take stringent measures against Chinese companies attempting to circumvent a government policy established in 2020. The policy mandates prior approval for investments originating from nations that share land borders with India. These Chinese companies are reportedly forging partnerships with Indian shell companies as a means to access subsidies, particularly in the fast-growing electric vehicle sector.
The Department for Promotion of Industry and Internal Trade (DPIIT) is currently examining Chinese automobile companies that have affiliations with suspicious Indian proxy partners but lack strategic plans for developing capabilities within the country.
This crackdown comes at a time when the Indian government is making substantial investments to foster the growth of the electric vehicle market. In the ongoing fiscal year, the government has allocated subsidies of over ₹5,000 crore under the FAME II scheme for hybrid and electric vehicles. Additionally, the approval of a ₹18,000 crore production-linked incentive (PLI) scheme in 2021 further supports the manufacturing, export, and storage of lithium-ion cells, which are crucial for the advancement of electric vehicles.
Furthermore, the government intends to communicate with industry associations to inform their members about these concerns and caution them against serving as a front for Chinese companies.
In response to mounting tensions with China, the Indian government modified its Foreign Direct Investment (FDI) policy in April 2020 via Press Note 3. The amendment aimed to prevent opportunistic takeovers by China, particularly during the Covid-19 crisis when equity valuations had significantly dropped. The revised policy mandated prior approval for foreign investments originating from neighboring countries and has since been strictly enforced.
According to sources, the government is concerned about Chinese companies influence in the electric vehicle (EV) market, primarily due to China’s dominance in the field of lithium-ion batteries. As India’s EV market is still in its early stages, the government is closely monitoring its development. Despite attempts to seek clarifications from the commerce and industry ministry, queries sent via email remained unanswered at the time of press.
Industry estimates suggest that Indian EV companies are expected to receive investments totaling $12.6 billion across the automotive supply chain over the next five years. Approximately 60% of these investments are projected to be directed towards automakers, while the remaining funds will be allocated for battery manufacturing.
Chinese diplomats informed Mint that several investment applications from Chinese companies in India have been pending approval for a significant period. This delay is attributed to the amendment made to the Foreign Direct Investment (FDI) policy, which seeks to closely examine the beneficial ownership of investments from specific countries. As a result, there has been an increased level of scrutiny on Chinese firms operating in India.
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