Global tech companies are anxiously watching how a proposal in India to block many technology imports plays out in the populous country.
Under the plan, tech companies would have an option to set up new factories in India or expand current plants there. Otherwise, they might not be able to sell their products.
It appears that several U.S.-based companies are lobbying against the proposal, given the huge amount of revenue at stake and the increasing market for tech products. India's tech and electronics markets are projected to be some $400 billion by 2020. That compares to $45 billion in 2009.
"India is the largest free-market democracy in the world. To mandate local manufacturing is antithetical to the very concept of a free marketplace," Ron Somers, president of the U.S.-India Business Council, which represents U.S. firms, told The Wall Street Journal.
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The Journal identified several companies most at risk for loss of revenue: Dell, Cisco and IBM. Cisco and IBM currently do not have any plants in India. Other at-risk companies include: Nokia Siemens Networks (News - Alert) B.V. and Telefon AB L.M. Ericsson.
The wireless telecom sector is among those at risk. The Association of Unified Telecom Service Providers of India, which is made up of global and Indian telecom companies, wrote to India’s telecom ministry in November that the proposed rules are "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."
The “Buy India” proposal would also impact the importation of tablets, laptops, printers, set-top boxes, Wi-Fi devices, telephone handsets, switches and routers.
What compounds problems under the proposal is that India’s infrastructure is “poor” – such as the low quality of roads – and there is an unreliable energy supply. These make it difficult to locate plants there. Also, “building plants can take years because of red tape and other hassles,” The Journal said.
It’s not clear if the proposal is largely a ploy by the Indian government to get more foreign tech companies to set up plants in that nation – and restrictions could later be scaled back. It’s very clear, however, that India wants to narrow its increasing trade gap.
Also, many tech products feature parts made in India’s rival, China, even though they are later assembled in other nations. The definition of where a product is from could become a contentious issue.
Currently, India has virtually no “homegrown” semiconductor market, The Journal adds, which makes the proposal more difficult for foreign companies to implement.
"You cannot force manufacturing to happen in India when there's no support system for manufacturing," Akshay Grover, an India telecom analyst at Ernst & Young, told The Journal.
In addition, there is worry in the United States and elsewhere over revised India tax regulations which could lead to new liability for foreign companies as early as April. Tax policy in the nation has led to other concerns from global investors.
For instance, a recent survey by Deloitte (News - Alert) showed that "while India continues to be an attractive investment destination, the dynamic Indian tax framework create(s) some apprehensions in the investors' perception about the approach on the tax issues related to transactions in India,” the Economic Times of India reported. There is disagreement in the nation, too. For instance, a recent proposed levy on electronics imports into India led to disagreement among government ministries.
If India is successful at implementing a tech ban, other nations may try to follow its example, further causing difficulty for global tech businesses.