Gujarat Bags Bulk of Investment from Modi’s China Trip

Posted by Reading Time: 5 minutes

By Dezan Shira and Associates

Editor: Aakash Shah

Prime Minister Narendra Modi helped secure over US $22 billion in investments from China during his trip to the country last month. The China trip was the most lucrative foreign trip of his first year as prime minister. Yet the deal was substantially less than the USD $46 billion China and Pakistan reached in April. Moreover, at least six of the total 26 business agreements Modi helped secure from China will go to Gujarat, Modi’s home state. Another two agreements signed as a result of Modi’s trip will also go to Gujarat.

Modi’s foreign ventures have helped change the way businesspeople think about India, but after one year in office, many local observers are beginning to question the effectiveness of Modi’s international marketing. Indeed, government sources quoted in the Indian media stress the ‘diplomatic dividends’ reaped from Modi’s ventures, not the financial dividends.

Salesman-in-Chief for India or Gujarat?

The investments from China mark an important step forward for Modi’s economic agenda and the bilateral relationship between China and India. However, the China-Pakistan trade deal creates a significantly larger amount of infrastructure in Pakistan, and includes more development projects designed to aid the general public. The China-Pakistan trade deal also provides Chinese investment for Gwadar port, giving China direct access to the Arabian Sea.

The business agreements secured as a result of Modi’s trip to China primarily focus on industrial and energy development. However, the deals are weighted disproportionally in favor of  interests in Gujarat.

At least eight projects resulting from Modi’s trip to China are located in Gujarat. The China Association of Small & Medium Enterprise (CASME) has pledged to help the Gujarat state government create an industrial park, while the China National Technical Import and Export Corporation (CNTIC) will help the Welspun group create an integrated steel project in Gujarat. China-based Golden Concord Holdings Ltd. (GCL) will help develop another industrial park within the Adani Group’s Mundra Port and Special Economic Zone (SEZ) in Gujarat. The China Development Bank (CBD) will finance a power plant at the Mundra SEZ.

The Mundra Port and SEZ was deemed a sister port with the port of Guangzhou, as opposed to the nearby government-owned and operated Kundla port. Gujarat also secured a contract for a coal power plant near Mundra Port in the town of Nana Layja. Separately, the governments of India and China agreed to develop a National Institute of Skill Development in the Ahmedabad-Gandhinagar metropolitan area.

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Gujarat officials reported in the media that the CASME backed industrial park will receive USD $1.56 billion in financing. A day after Modi left China, these officials reported that China Small and Medium Enterprise Investment (CSMEI) pledged US $2.97 billion to the development of a smart city in Gujarat. Media reports state this smart city investment will go towards the GIFT City (Gujarat International Finance-Tec City) project near Gandhinagar.

Taken together, these two projects alone account for US $4.53 billion in investment for Gujarat – not including the other Chinese investments planned for Gujarat. Gujarat hosts only 4.99% of the total population of India, but will host a disproportionate share of the funding that resulted from Modi’s visit to China.

Modiplomacy

Within a year of his inauguration, Modi made 20 foreign visits to 19 countries. His travel schedule included official state visits to Bhutan, Nepal, Japan, U.S., Myanmar, Australia, Fiji, Seychelles, Mauritius, Sri Lanka, France, Germany, Canada, China, Mongolia, South Korea and Bangladesh. He also visited Nepal once for the SAARC Summit, Brazil for the BRICS Summit Myanmar for the East Asia Summit, and Singapore for the State Funeral of Lee Kuan Yew.

Nevertheless, his recent state visit to China was the only foreign visit that solidified a significant investment plan for India. During his visit to Canada, Modi secured a US $350million deal for uranium, giving India a stable uranium supply to expand its nuclear energy operations. However, with exceptions for the China and Canada trips, Modi is yet to yield a substantive trade deal on his trips abroad.

There are a number of ways to analyze Modi’s foreign policy strategy. Many observers maintain that Modi’s foreign policy is primarily one of branding himself as someone who can rejuvenate an underperforming Indian economy. Others note that Modi has focused on building relations with foreign dignitaries and officials, attempting to improve India’s relations with important developed countries such as the U.S., Germany and France.

Ultimately, Modi embarked on a world tour to promote a new vision of India. Although embracing and befriending other dignitaries is a start, beyond the China deal, where he still received less funding than Pakistan, he is yet to show much improvement. Indeed, much of the funding India received from China is being invested in his comparatively well-developed home-state of Gujarat.

Modi’s rejuvenation of the ‘Act East Policy’ (formerly known as Look East Policy), as well as his support for the Neighborhood First Policy and Project Mausam, indicates that the he will be far more involved in foreign policy than his predecessors. Yet, these policies have yet to bear their teeth. When looking back on Modi’s first year as prime minister, one can come to one of two conclusions. First, it is possible to say that Modi has planted seeds of diplomacy that are yet to come to fruition. The second is that Modi is not been as successful as the Indian media has lead us to believe.

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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