India’s open for business push has local quirks

Tower Semiconductor

20/09/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Shritama Bose
       MUMBAI, Sept 20 (Reuters Breakingviews) - Prime Minister
Narendra Modi has spent much of the past decade lowering
barriers to foreign investment in India. Yet a growing list of
firms including BlackRock  BLK.N , BMW  BMWG.DE  and Shein are
expanding in the country in partnership with local tycoons. It
tightens the grip powerful families have on the world’s
fifth-largest economy, and sets them up as future global rivals
to those knocking on their door. 
    On paper, the once-markedly socialist country is open for
business. Its craving for capital is strong. Overseas companies
in most sectors are free to enter the market on their own,
unlike in China, where large swathes of the economy were kept
off limits and where some sectors, like autos, were opened up on
the condition that foreign companies found local partners.
    The problem is, India’s federal political system and sheer
cultural and geographical diversity means it remains a tricky
place for international companies. Powerful families offer a
shortcut to establishing a nationwide footprint, avoiding
cut-throat domestic competition, or achieving both of those
things.
    BlackRock’s decision to re-enter India exemplifies the
dilemma. The company run by Larry Fink, which manages over $10
trillion, is in the process of teaming up with Mukesh Ambani’s
Jio Financial Services  JIOF.NS  in asset and wealth management.
The U.S. company exited an Indian joint venture with DSP in 2018
because it didn’t have a path to control. 
    Fink is unlikely to have a path to control with Jio but the
rapid financialisation of savings in recent years means the
market is too attractive for BlackRock to ignore. Partnering
with a tycoon is less risky for the U.S. company than trying to
beat India’s richest man who wants to push into financial
services and is known for obliterating competition. 
    The desire of foreign companies to defend their market
position in India partly explains their rush to subscribe to
fundraisings by Reliance’s  RS.N  business units in 2020. These
include Facebook-owner Meta Platforms'  META.O  $5.7 billion
purchase of a 10% stake in Reliance’s digital and telecoms
business. India remains open for U.S. Big Tech but Indian
companies are also flexing their muscles more in digital
businesses from telecoms to e-commerce as more Indians get
smartphones. 
    Elsewhere, New Delhi is encouraging partnerships through
subsidies in its flagship production-linked incentive scheme to
spur manufacturing. This allows the government to dictate which
foreign companies team up with which Indian families to be the
next leaders in future industries.
    Taiwan’s Hon Hai Precision Industry  2317.TW , more widely
known as Foxconn, pulled out of a joint venture last year to
make chips with Anil Agarwal’s Vedanta  VDAN.NS  after
widespread concerns about the Indian company’s debt and its
ability to fund investments. Meanwhile, global companies like
French oil giant TotalEnergies  TTEF.PA  are burnishing their
green credentials by partnering with Indian tycoon Gautam Adani,
who has big ambitions in renewable energy. Smoother access to
subsidies is one reason companies including Japan’s Fujifilm
 4901.T  are scouting for local partners before they start
production in India.
    It’s significant that many of the new partnerships are in
the realm of technology. Adani’s group will work with Israel’s
Tower Semiconductor  TSEM.TA  to build a chip fabrication plant;
German carmaker BMW and Tata Technologies  TATE.NS  plan to
leverage Indian talent in IT to develop intellectual property
that will drive cars of the future. 
    While India’s approach to inward investment differs from
China’s in many ways, the country desires the same thing as its
neighbour wanted from foreign multinationals: know-how. 
    The government yearns for the South Asian nation to become a
manufacturing powerhouse. India’s leading business families also
want to dominate in their home market and to break out as
leaders on the global stage. After picking up a stake in UK
telecom operator BT  BT.L  last month, Bharti Enterprises Chair
Sunil Bharti Mittal told journalists India's government is
continuously encouraging a handful of companies which have gone
global to accelerate the process.
    That sets up the potential for at least some of the new
Indian alliances to sour, just as several Chinese joint ventures
did. True, some foreign companies that ventured into the
People’s Republic simply failed to keep up with fast-changing
local consumer preferences. Others, though, said they were
pressured into handing over technology to their private or
state-backed joint venture partners, to local officials or to
Chinese regulators as a condition for doing in business in the
world’s second-largest economy.  
    That complaint took centre stage in a trade war launched in
2018 by then U.S. President Donald Trump. When Stellantis
 STLAM.MI  ended its joint venture with Guangzhou Automobile
Group  601238.SS  in 2022, the European carmaker’s CEO Carlos
Tavares blamed rising “political influence” in doing business
with partners in China.
    It is therefore perhaps unsurprising that Chinese companies
have the least freedom to operate on their own in India. The
government turned up the heat on companies from the People’s
Republic after a deadly skirmish between the two countries’
militaries along the Himalayan border in 2020. This tension has
resulted in some particularly eye-catching joint ventures struck
by Chinese companies that want to continue to expand in the
fast-growing Indian market. 
    Four years after New Delhi banned Shein’s app, the
fast-fashion company which was founded in China is back in
partnership with Ambani’s $240 billion Reliance Industries.
Together they plan to digitise the supply chains of the
conglomerate’s retailer, manufacture goods and export them to
the world. Similarly, less than two years since India launched
an investigation into a local unit of Chinese automotive giant
SAIC Motor  600104.SS , the company finalised a joint venture in
March to sell its MG-branded cars in partnership with Sajjan
Jindal’s JSW Group. 
    New arrivals at least have some examples of successful
foreign joint ventures in India to aspire to. Take $46 billion
Maruti Suzuki  MRTI.NS , purveyor of 40% of the country’s cars.
This partnership with Japan’s Suzuki Motor  7269.T  has
delivered yearly returns to shareholders over the past decade,
including dividends, which exceed those of the benchmark Nifty
50 Index. Meanwhile, Adani Wilmar  ADAW.NS , the Adani group’s
partnership with Singapore’s Wilmar  WLIL.SI , established a
quarter of a century ago, is behind India’s largest selling
edible oil brand.
    Outside of joint ventures, some foreign companies have had
more luck than others on their own in India. South Korea’s
Samsung  005930.KS  has had remarkable success selling
smartphones and held a leading position in the consumer
electronics market for a long time, but British telecom operator
Vodafone  VOD.L  struggled with a price war and merged with
India’s Idea Cellular in 2018. Whether or not India is open for
business, foreign business alliances are accumulating even more
power in the hands of the country’s leading tycoons.

    Follow @ShritamaBose on X

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Graphic 1: Foreign direct investment into India is slowing    https://reut.rs/4e6ihW9
Graphic 2: Tycoons lead a third of India's benchmark index    https://reut.rs/3B6k1Am
Graphic 3: Suzuki's Indian joint venture is a standout success  
 https://reut.rs/4d7FIwZ
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 (Editing by Una Galani and Ujjaini Dutta)
 ((For previous columns by the author, Reuters customers can
click on  BOSE/ 
shritama.bose@thomsonreuters.com))