General Motor’s sale of its factory complex to China’s Great Wall Motor Cois is also in limbo.
Flanked by rolling green hills lined with yellow and orange wildflowers, General Motors Co’s 300-acre factory in the western Indian town of Talegaon has been mostly idle for most of the year. Only one moldy layoff notice recorded outside the mothball plant shows the difficulties GM is currently facing as it separates itself from the country.
Four years after stopping sales in India and more than a year since its last car for export was taken off the production line, the automaker is still mired in legal challenges. from the labor union representing more than 1,000 former workers the company had laid off at the factory. , effectively blocking its exit.
GM’s sale of the plant complex to China’s Great Wall Motor Co is also in limbo, despite an agreement signed in January 2020. India has restricted new Chinese investment since April of that year, and several deadly clashes along the two nations’ disputed border. in the weeks that followed eroded the relationship further.
Even with a rapid increase in foreign investment in India, GM’s $1.1 billion loss, and political and legal problems that have prevented GM from selling its business, is a boon. clear warning to foreign investors. International companies have been trying to reach the growing middle class in this nation of 1.4 billion people since economic liberalization in the 1990s. But they have been stymied by high taxes, strict labor rules, challenging legal system and other barriers.
“India remains a place,” said Richard Rossow, former deputy director at the US-India Business Council and now Wadhwani chair of US-India policy research at the Center for Strategic and International Studies in Washington. difficult to manufacture. “Most global manufacturers have a hard time tapping the market and following a big, meaningful path.”
Legal uncertainty
Until August this year, a controversial law allowed the Center to collect capital gains tax on foreign businesses due to the indirect transfer of their Indian assets. Businesses, including oil and gas driller Cairn Energy Plc and Vodafone Group Plc, spent years fighting in arbitration courts before Delhi rescinded the rule.
Global automakers face a particular struggle to gain traction at home. Consumers favor compact, low-cost vehicles such as Hyundai Motor India Ltd and Maruti Suzuki India Ltd, which control 60% of the market. Toyota Motor Corp. has ruled out any expansion here, and motorcycle maker Harley-Davidson Inc gave up last year.
Ford Motor Co is also shutting down operations in the country. That decision would cost the company $2 billion in restructuring fees and could be entangled in protracted legal battles with local dealers, who are responsible for providing after-sales service after sales. The producer leaves. “We expect Ford to compensate dealers,” Vinkesh Gulati, president of the Federation of Automobile Dealers Associations, told Bloomberg TV in September.
A Ford India spokesman said the restructuring “follows a detailed examination of the Indian business and potential options in light of the changing economic and regulatory environment.”
“Working with our dealers, we continue to maintain full customer activity for our existing customers,” he said.
Byzantine Rule
Another barrier is the tax regime that levies up to 28% on domestic sales of gasoline-powered cars. And car import tax from 60% to 100%. Elon Musk said in 2019 that import duties would make Tesla Inc cars unpurchaseable in India.
According to Rossow, international investors also often stumble across byzantine rules and regulations made by the central government and the 36 states and union territories. Companies with more than 300 employees cannot fire anyone without government permission. Acquiring land at non-disputed prices or demanding bribes can be a problem, and electricity from the grid is unreliable. Meanwhile, he said, businesses must be prepared for frequent landings and outright corruption.
Foreign direct investment into India grew 19 percent last year, but still accounts for a smaller share of gross domestic product than countries like Singapore and Vietnam. A large part goes to businesses owned by Asia’s richest man, Mukesh Ambani, as several well-connected Indian corporations like him are increasingly becoming gateways to doing business in the country.
At the national level, Prime Minister Narendra Modi’s administration has made it easier for foreign investors to do business, according to Rossow. “A lot of the prime minister’s personal engagement with executives is trying to encourage that next big investment,” he said. Those who have invested, however, have received “a little less time and attention over the past few years.”
‘Disintegration’
In the 1990s, GM was very enthusiastic about entering the newly opened Indian economy. Its factories have drawn thousands of locals to highly respected careers in a country that has long struggled to provide formal employment for the millions of engaged Indians. labor market each year.
Securing a job with the US company more than a decade ago allowed Navnath Shete, a 34-year-old father of two, to marry on his station in India with status. He can borrow money to buy a house, send his children to private schools and financially support other relatives.
Now, like hundreds of others who worked at the Talegaon plant, Mr. Shete has been jobless and heavily in debt since the union rejected GM’s termination package.
“Everything fell apart,” Mr. Shete said. “When I lost my job, my wife didn’t want to go back to the village and work in the fields. Her parents thought I had a good job.”
GM says its offer is seven times higher than the statutory requirement and provides workers with an average salary of at least three years. But only a few hundred people accepted the deal. In April, the company slashed withholdings without securing the prior government authorization typically required by classifying the Covid-19 pandemic as a “disaster,” allowing GM to act independently. set up like that.
“The union deliberately ignored GM’s business in India and failed to negotiate in good faith to the detriment of the workforce,” said George Svigos, spokesman for GM International. “The company paid their employees for half a year, even though no vehicles were manufactured at the site.”
‘Pressure tactics’
The union argues that firing employees is illegal and has filed numerous court cases challenging them. In an August 25 letter seen by Bloomberg Businessweek and sent to Great Wall Motor, the union’s attorneys said GM employees had been fired as “a pressure tactic” and that the Chinese company would required to reinstate the workforce if the group of workers wins the court case. .
“The company remains very confident in its legal position and has acted in accordance with the law and certified standing orders between the union and management,” said Svigos.
Manufacturing as a percentage of India’s GDP has fallen from 15% in 2014, the year Prime Minister Modi took office, to 12.9% in 2020, according to World Bank data. “No one in India without a higher education gets a job after the age of 26,” said Sandeep Bhegade, union president at the GM plant. “We have 2.5 million rupees [$33,660] average debt. How will we live? “
China Dispute
The Great Wall is still interested in expanding on the subcontinent. “India is one of the most potential markets in the world. We will continue to invest in India,” a company spokesman said. “All projects are progressing steadily as planned.”
However, India’s restrictions on Chinese investments may remain in place, even as the boundary dispute eases. “There is no trust,” said Tanvi Madan, a senior fellow at the Brookings Institution in Washington. “This also has implications for these economic issues and some of these constraints.”
Many former GM workers still hope that the sale to Great Wall Motor will be successful and that they will be hired. Analysts believe that Delhi can grow over time, because auto manufacturing is not seen as an important sector of the government. But GM has stated that moving employees to Great Wall was not part of its original agreement.
For now, GM’s meetings with Indian and US government officials have yet to help break the deadlock over the sale or over GM’s labor issues, according to people familiar with the matter. . And with India attracting record levels of funding and listing on its stock market, plus Prime Minister Modi increasingly pushing for economic resilience for the country, there is no certainty that the government will His boss will be much worried about some current foreign manufacturers leaving the country.
“Perhaps Ford and GM will start to change that calculus a little bit, and they will be a little more concerned,” Rossow said, referring to Indian officials who are monitoring the manufacturers. Guaranteed premium car production nationwide. “But even with these big exits, a lot of people are coming in.” – With Ying Tian
