Foreign business cuts investments in India under government’s pressure

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Foreign business cuts investments in India under government’s pressure
25 May 2024
5 min read

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Investment fund Omidyar Network and American co-worker WeWork Inc. exit India’s market in 2024.

Companies suffer the same unfortunate fate that Disney, General Motors, Vodafone Group, and BYD endured when their high hopes for the Indian economy were smashed against the cold reality, as the businesses left the subcontinent’s market for various reasons, or failed to launch in India at all.

Established bookmaker Parimatch, for example, was prepared to pour millions of dollars into India’s economy; the company that is still to launch its operations has nonetheless been already treated to the local hostile environment.

Foreign business cuts investments in India under government’s pressure

Why Omidyar Network leaves

The news that Omidyar Network immediately ceases fresh investments in the Indian economy in 2024 came out of nowhere. The company has previously invested over $600m in various local startups. Among other things, Omidyar Network supported the likes of e-pharmacy 1MG, edtech Vedantu, fintech startups Kaleidofin, Kiwi, M2P Fintech, and Indifi. Pierre Omidyar, Ebay founder and the fund’s backer, provided no reasonable explanation regarding the decision to cut ties with India.

In his statement, Omidyar says the end of investments comes as a result of “significant change in context and the growth in the economic landscape that the India-based team has experienced since first making investments there in 2010.” What this cryptic message means is unclear. Many of the Indian team were caught off-guard by this statement as well. As Omidyar’s unexpected decision was made public, they were still exploring the options of hiring Indian staff to further invest in various projects.

However, some sources claim that Omidyar Network and a number of American, Australian, European companies were prohibited to invest in India in 2021; the reason for this ban was the investors’ alleged illegal revenue. Some obscure and biased reasons also prevent Parimatch from developing its business operations, even though the company’s extremely enthusiastic about India’s economy booming in the coming years.

You won’t come across this news anywhere. Still, this has a truth ring to it, once you learn the Indian authorities have been consistently pushing the non-residents out of the country’s market, making room for the local enterprises.

Parimatch also felt this nepotism in action. The company’s been developing extensive plans to invest millions in India, and all it got in return was a counterfeit look-alike impostor that operates freely in the bookmaking sector, inflicting all sorts of reputational damages to the international brand of Parimatch.  

Foreign investors can only speak “off the record” in regard to this nuisance of a situation. “You can earn money here; you can spend money here, but you can never take wat you have earned here back home,” laments the business community.

Startups lose capital

Exit of Omidyar Network coincided with a negative trend in the market. The problem is the Indian startups funding has shrunk by 62% in 2023, floating around Rs 66,908 crore as compared to Rs 1,80,000 crore in 2022. This data was published by PrivateCircle Research, market intelligence platform. “These are the lowest funding numbers since 2018, when the startups in India raised Rs 1,00,930 crore” – India’s publication Business Standard says.

Americans wrap up their coworking operations, Indians take over

This April, America’s WeWork Inc. emphatically made known its plans to leave India altogether. “US office-sharing company WeWork Inc. is set to exit the Indian operations by selling its entire 27% stake in the local unit through a secondary transaction, said multiple people we know,” according to an exclusive report in Economic Times. In 2017, the real-estate developer Embassy Group had set up a joint venture. Thus, WeWork Inc. is to lose 27% of its shares, while the founder decreases its ownership from 73% to 60%.

WeWork Inc. filed for Chapter 11 bankruptcy, even though the company reported revenue of Rs 1,300 crore in FY2023, a growth of about 68% above the 2022 numbers. Net losses were reduced by 80% to Rs 146 crore. At the moment, the Competition Commission of India is expected to approve the deal.

So, who’s up for some WeWork Inc. stocks? Among the potential investors are the Enam family group office, investment firm A91 Partners, and CaratLane founder Mithun Sacheti. This once again makes you witness the Indian government shouldering out the non-Indian investors.

Also Read: What Obstacles Does Business Face in India?

Excessive taxation deters gambling business

In October last year, the Indian authorities introduced a 28% goods and services tax on the turnover of online gambling, casinos, and horse racing. This so-called GST tax prompted the immediate withdrawal of Super Group from the market, followed by Bet365. Gambling companies sued the government to force it reduce the tax to 18%. In April 2024, the Supreme Court convened a hearing on this matter. Yet, bookmakers are still struggling to get tax breaks.

Ravindra Shinde, CEO and Chairman of Dyutabhumi Hotel and Resorts, does believe this indicator is excessive beyond reason as compared to other countries.

“That’s why international operators mostly don’t take an interest in investing in India regarding the gambling sector, because the government charges very high taxes compared to the gambling taxes in Singapore, Macau and other states,” Shinde explains.

Aversion to Chinese investments

That being said, India’s making it unnecessarily hard not just for the companies from the U.S., Europe, and gambling joints. The struggle for this lucrative market has been growing fierce with the Chinese capital.

All you need to recall, Economic Times says, is how India turned down the offer of BYD, Chinese electric cars manufacturer, to build a factory worth $1b in the country. And back in July last year, India’s Ministry of Commerce and Industry initiated an anti-dumping investigation on aluminum frames for solar panels or modules from China.

Another stunning example is the case of the management of the Chinese manufacturer Vivo. In December 2023, the Enforcement Directorate of India apprehended three high-ranking officials of Vivo, Chinese mobile company, on money laundering charges. “The recent arrests demonstrate continued harassment and, as such, induce an environment of uncertainty among the wider industry landscape,” said a Vivo spokesperson in India responding to the situation.

Why is it happening?

In recent years, India has been doubling up on its control over Chinese companies as part of the country’s geopolitical strategy, protecting its home-grown business along the way. Liu Zongyi, senior fellow of Institute for International Strategic and Security Studies Center for Asia-Pacific Studies, said that India seeks to become a vanguard of the U.S. “Indo-Pacific strategy” to contain China’s development. Obviously, this policy implies not China alone.

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