Curbs on Chinese FDI hit GM plans to exit India

Curbs on Chinese FDI hit GM plans to exit India

Sale of Maharashtra plant yet to be cleared by MHA, RBI

Continuing tensions with China at the Line of Actual Control (LAC) could impact the government’s decision on a major U.S.-China auto plant deal in Maharashtra, with thousands of jobs on the line.

The deal between U.S.-owned General Motor India (GMI), to sell its car manufacturing plant in Talegaon MIDC Industrial Area near Pune, to Chinese company Great Wall Motors (GWM) is awaiting clearance from the Ministry of External Affairs, Home Ministry and others, sources told The Hindu, for more than a month. The MoU for the acquisition was announced in January 2020, before the government brought in strictures over foreign direct investment (FDI) from neighbouring countries.

However, no clearances have been granted for Chinese FDI in the last few months, complicating matters for the U.S. company, which wants to exit India with this deal.

GM India had on January 17, 2020 entered into a binding term sheet agreement to transfer the fully operational car manufacturing and export hub plant at Talegaon to GWM, which wanted to immediately start manufacturing its Havel range of SUVs and EVs in India. Announcing the agreement, Liu Xiangshang, V-P, global strategy, GWM, had said the investment in the Talegaon plant, reportedly worth ₹700 crore (approximately $94 million), would boost the government’s “Make in India” programme.

The MEA and Ministry of Commerce and Industry did not comment on the status of the application (5339/2020). Sources said the application for the investment proposal had been submitted to the Department of Trade Promotion of Industry and Internal Trade (DTPII) by GMI and GWM on July 9, and forwarded to the MEA, MHA, RBI for clearances on July 13. According to the application, GMI would be acquired by GWM’s Wholly Owned Subsidiary (WOS) Billion Sunny Development of Hongkong.

Responding to a detailed email on the progress made on the deal so far, a General Motor official spokesperson said, “We continue to work towards end of production and deal closing.”

The Hindu also reached out to GWM India for its comment on the delay in obtaining regulatory permissions, but the company declined to respond. “Thank you for your mail but we would refrain from participating [in the story],” texted an external communication professional working for GWM in India.

The GMI-GWM proposal is one of more than 200 investment proposals from China received by the DPIIT which are awaiting security clearance, since the government notified the new FDI policy on April 18, making prior government approval mandatory. As FDI is allowed in non-critical sectors through the automatic route, earlier these proposals would have been cleared without the MHA’s nod.

In 2017 GM decided to shut down it domestic operations in India, 22 years after it first entered the market. At the time GMI sold its Halol plant in Gujarat to another Chinese major, SAIC, which now produces its Morris Garages (MG) ‘Hector’ and Electric Vehicles (EVs) cars there. In September 2019, GM also transferred the operations of its Technology Centre in Bengaluru to TCS, which has taken over the facility to run it along with GM India’s 1300 employees.

The Talegaon plant is currently used only for 100% exports of Chevrolet ‘Beat’ cars and engines to Latin America and other markets, as GMI is making its final exit plans from India after failing to make any profit in its country operations.

Significantly, just two months ago, GWM had made a commitment to invest as much US $1 billion in India, announcing its entry with an MoU with the Maharashtra government on June 16, 2020. Part of the investment would generate employment for over 3,000 people at the car factory and R&D Centre in Bengaluru. As per the MoU, part of the “Magnetic Maharashtra” initiative, GWM had proposed a total investment of ₹3,770 crore.

With the permissions for the Talegaon plant acquisition still awaiting clearance, the future of the larger commitment is unclear .

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