India Proposes Curbing Foreign Tech Product Imports
Jan. 9 – The Indian government has proposed significant curbs to the importation of foreign technological products. If successfully implemented, this regulation will require a large percentage of technological goods to be manufactured locally. This plan reflects the government’s strong desire to compel foreign firms to increase their manufacturing operations in India.
While the specifics of this plan are still in draft form, it is causing much anxiety among global technological companies. To comply with this regulation, foreign firms would have to quickly establish factories within India or risk losing their current business.
The sales of technological goods within India generate billions of dollars in revenue per year, and this is only expected to increase in the future. In 2009, spending in India’s technology market amounted to US$45 billion; by 2020 it is predicted to reach US$400 billion.
While many foreign companies are not opposed to establishing manufacturing factories in India (some in fact are already manufacturing in India, including Nokia-Siemens and Ericsson), they want the government to provide extra incentives to invest, such as tax holidays and better infrastructure.
“You cannot force manufacturing to happen in India when there’s no support system for manufacturing,” said Akshay Grover, an India telecom analyst at consulting firm Ernst & Young.
The list of products that this regulation effects has dramatically expanded. After initially seeking to just curb the import of Chinese wireless telecom equipment, the recent proposal now also targets laptops, Wi-Fi devices, mobile phones, and a range of other technology products.
Due to the large amount of revenue at stake, lobbyists from the United States have quickly opposed the proposal.
“India is the largest free-market democracy in the world. To mandate local manufacturing is antithetical to the very concept of a free marketplace,” comments Ron Somers, president of the U.S.-India Business Council.
Furthermore, an organization which is made up of global and Indian telecom companies, the Association of Unified Telecom Service Providers of India, has opposed the regulation, stating that it is “an unprecedented interference and significant disruption in the global telecommunications marketplace, while raising significant questions about India’s commitment to the rules-based trading system established under the World Trade Organization.”
Meanwhile, many Indian officials have supported the proposal, claiming that it is necessary to counter the nation’s widening trade gap. They argue that technology imports have been central to the current trade gap, which is estimated to reach US$300 billion by 2020. At this point, it would even surpass India’s oil imports which are currently the main contributor to the nation’s current-account deficit.
Ultimately, the government can still adjust the plan to account for the level of criticism that has been leveled against it. Nonetheless, if passed in its current form, this regulation could force sweeping changes across India’s technological market.
Dezan Shira & Associates 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 emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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