Indian Startups Gain Impetus As Global Capital Shifts From China


Indian technology startups, which are mopping up record inflows of venture capital, will gain further as global capital moves away from Chinese tech companies that are weathering a regulatory onslaught. Not one or two, but as many as 1,000 companies have reached out to India. They’re engaged in discussions with the Indian officials at various levels. At least 300 companies are actively pursuing production plans belonging to industries and sectors like mobiles, electronics, medical devices, textiles and synthetic fabric. Korean companies are eager to penetrate the Indian market as the Korean consulate in Chennai has received several requests from iron and steel companies and the hospitality sector. Some startups have also shown interest in relocating from China to India. India is considered the next best alternative for a global manufacturing base.

In a larger sense, however, it underscored that the philosophical threads in the fabric of economic globalisation were fraying. Conventional notions of comparative advantage and free trade binding states in a virtuous cycle of prosperity and peaceful coexistence were severely strained. Three factors amplified this dynamic, i.eChina’s economic rise coupled with an authoritarian turn in its politics, the populist backlash in the West and intensified geopolitical competition over emerging technologies. The pandemic accelerated these currents. Shutdowns prompted demands for supply chain resilience and redundancies. A wider array of sectors is now being viewed from a national security prism. China’s pandemic diplomacy added to anxieties about the vulnerabilities of dependence on any single market, along with the need to secure one’s innovations. Essentially, politics has become more important in economic decision-making, with trust and not just efficiency being critical to the choices of states and firms. The pandemic accelerated these currents, and shutdowns prompted demands for supply chain resilience and redundancies. 

China is Australia’s largest trading partner. In 2017, the two-way trade relationship was worth over $183.4 billion – a growing dynamic that AustCham Shanghai is well placed to play an active role in. Even though the country is an active part of the chamber of commerce, the ongoing China tech crackdown has resulted in over half a trillion dollars being wiped out from Chinese tech stocks in a week, including from Alibaba Group, Kuaishou Technology and Tencent Holdings. Last week, the Chinese government introduced stricter data protection laws mandating how technology companies handle user data in a move that has alarmed investors. The stringent regulatory oversight deepened last month when China banned private investments in the $100-billion.

Private equity-backed investments into China’s education sector hit a record high of $8.1 billion last year as pandemic-induced lockdowns boosted demand for online education, Refinitiv data shows. That is more than half the total deal value of $15.5 billion since 2016. But even after such a massive inflow, India is attracting firms that might be seeking to exit China as India is the third-largest startup market—after the US and China—for investors to park their capital in when there is increased liquidity in the market. So far this year, the country has already seen 25 new unicorns, and nearly $20.76 billion has been raised across 583 deals as of August 20. 

Investors have hesitated to move to India in the past; hence India is making the idea of relocation of manufacturing bases out of China more lucrative with special incentives. Ten sectors have been hand-picked by the Indian government – Pharmaceutical, Medical Devices, Electronics, Heavy Engineering, Solar Equipment, Food Processing, Chemicals and Textiles, to name a few. These are sectors that will promote manufacturing in India. Requests for investments are already coming India’s way. The Indian government is keen on capitalising on the shift as it aggressively promotes the ‘Make in India’ initiative. 

The pandemic has exposed how volatile supply chains can be and how risky it is to depend on a single supply chain. India is offering land to foreign investors who wish to reduce their reliance on China. Companies like Apple’s manufacturing partner Foxconn and South Korean companies, POSCO and Hyundai steel, are showing interest in setting up their production base in the country. 

The Prime Minister of India has chaired a meeting to discuss steps to fast-track strategies and attract investors. Andhra Pradesh is already in touch with companies from Japan and South Korea. The state is developing an online system for land allotment. As the world has begun financial distancing from China, India is turning out to be a hot spot for new investments. China’s loss could be India’s gain.

Categories: Most Read: 2021-09 (September)

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