US ‘must be alarmed’ by foreign companies exiting India: Hudson directors

US ‘must be alarmed by foreign companies exiting India Hudson
US ‘must be alarmed by foreign companies exiting India Hudson


The impact of multiple major global corporations pulling out from India on the country’s foreign investment climate could be amplified by the broader geopolitical implications of these exits, given that several of these companies are based in the US. From automobile companies such as Ford, General Motors and Harley Davidson to Citibank, Holcim, Carrefour, and Metro AG, a string of global companies have either exited, scaled down or are working on pulling out of India.

Notably, while some of these companies have either cited poor competitive position or global business strategies, others have had long-running tiffs with law enforcement and tax authorities.

In an opinion piece published by The Hill, Washington-based Hudson Institute directors Hussain Haqqani and Aparna Pande have posited that the Joe Biden administration “must be alarmed” by the decisions of several foreign corporations to either pull out of the Indian market or put their long-term plans on hold. This assumes significance, particularly, because for years the US has hoped to enable India’s rise “as a way of checking China’s growing power,” they wrote.

The authors also argued that Western democracies, which see India as a natural ally, believe that India would be able to deliver on its economic and military potential only if it attains higher growth rates — something that would only be possible “with larger inflows of foreign investment and further opening of India’s markets”. In the year ending March 2022, India saw foreign direct investment inflows of $58.77 billion, marginally down from $59.64 billion a year ago.

Last year, the Indian government took steps to address some of the long-standing tax disputes with foreign companies in an effort to repair its damaged reputation as an investment destination. The government had announced rules, which when adhered to, will lead to the Centre withdrawing tax demands raised using the 2012 retrospective tax law and any tax collected in the enforcement of such demand being paid back. The retrospective tax law had an impact on corporations such as UK telecom giant Vodafone Plc, energy company Cairn Energy Plc, pharmaceuticals company Sanofi and brewer SABMiller, now owned by AB InBev.

However, a number of disputes still fester. As per a Reuters report last week, French spirits group Pernod Ricard, in a letter to the Prime Minister’s Office, has noted that three-decade old tax disputes with authorities on valuing liquor imports has inhibited fresh investment and its current business.

The sale of Swiss cement-maker Holcim’s India assets to the Adani Group was also preceded by fines amounting to over Rs 2,300 crore by the Competition Commission of India (CCI) on Holcim’s India companies — ACC and Ambuja Cements. The fines will be paid by the new owner.

Further, in May, Ford, which had already announced that it will stop selling its cars in India, retracted its plans to manufacture and export electric vehicles from India — a plan it had announced only a few months earlier.

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In a 2021 report on India’s investment climate, the US State Department noted that India remained a challenging place to do business. “New protectionist measures, including increased tariffs, procurement rules that limit competitive choices, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards, effectively closed off producers from global supply chains and restricted the expansion in bilateral trade,” the report said.

Authors of The Hill piece also said despite the challenges, India’s large size and location continue to make it an attractive market for foreign businesses. “Access to the large Indian consumer market is a dream, as is the hope for a stake in the upgradation of India’s civilian and military infrastructure … India’s current rate of economic growth is woefully inadequate for India’s domestic goals as well as the objective of becoming a serious rival to global economic juggernaut, China. The latter makes India’s economic policies a strategic concern for US policymakers,” they wrote.





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