If Chinese companies want to join India’s mobile equipment and electronics supply chain and set up factories, they may have to hand over at least 51 per cent stake to an Indian partner.
“There is now a consensus that Indian partners should hold 51 per cent stake in such joint ventures so that they have control over the management and the board of directors,” said a top government official.
The move assumes significance as several global and Indian companies are looking to set up joint ventures with Chinese companies in the mobile equipment and components manufacturing sector. He says that the limit of Foreign Direct Investment (FDI) should be linked to the importance of the technology required for a product, which the Chinese company wants to hand over.
The Indian Cellular and Electronics Association has suggested to the government that the limit may be fixed on the basis of grade system. For example, for passive and active components, camera modules, connectors, ringers, etc., the FDI limit has been suggested to be 51 per cent.
Accordingly, the FDI limit for mechanics, microphone, keypad etc. can be kept at 49 percent. For other sectors like packaging, it has been suggested to keep the FDI limit at just 24 per cent.
This will ensure that the country does not depend on imports from China and value addition of key components can be done in India itself. In such a situation, the supply chain can be much more secure. Some global companies are insisting on an equal shareholding structure for joint ventures. He says that without this, most Chinese companies would not want to share their technology.
In the last few months, there has been some change in the government’s stand on the issue of FDI from China. In the year 2020, after the escalation of the deadlock on the India-China border, the government’s stance had become quite tough. But after the continuous demand of global and Indian companies of mobile equipment and other sectors, some relaxation has been given. He says that if the country wants to achieve its export target in this sector, help from China will be needed to create a supply chain.
The government has asked Indian companies to name Chinese suppliers who want to set up factories here through joint ventures with Indian companies. Those Chinese companies will have to negotiate with an Indian JV partner after preliminary scrutiny by the government.
After negotiations, in the final stage, they will have to approach the government for FDI approval under Press Note 3 of April 2020. It was said in the press note that companies from those countries, whose land border is with India, will have to take FDI approval from the government for investment in India. No relaxation has been given in the rules under Press Note 3.
Under this policy, Apple plans to get investment approval for 14 of its 17 vendors in China that supply parts. Apple plans to move 12 to 20 per cent of its iPhone assembly capacity to India by 2026, in value terms. 10 of these suppliers had already moved to India prior to the release of Press Note 3. But sources say that if they want to invest more in India, they will also have to get approval for the joint venture.
About 80 percent of the global mobile equipment supply chain is located in China and operated by Chinese companies. India plans to become a global export hub in this sector by 2026.
