High tariffs and local sourcing obligation can hurt foreign investments: Netherlands Ambassador

NARAYANAN V Chennai | Updated on February 28, 2020

India has a huge potential to become a global supply chain hub but the country needs to address issues related to labour market regulations, transparency, public procurement and certain areas of infrastructure to attract more foreign investments, according to a senior official of the Netherlands government.

“India has a lot of opportunities like a young population, service-oriented economy, and IT orientation, which are very relevant for future economic relations and the Netherlands is one of the biggest investors in India,” Marten van den Berg, Ambassador of the Netherlands, told BusinessLine during an exclusive interaction.

However, the Dutch Ambassador added that stringent local sourcing norms in India are making it difficult for some multinational companies to set up business in the country.

“For certain companies who like to invest in India, if they want to start manufacturing hi-tech products, it takes some time. For example, if you have 70 per cent local content requirement, it can be difficult in the beginning,” Berg said adding, the government can start with 20 per cent localisation and eventually increase it to 100 per cent after a few years of operation.

Highlighting the point, the Ambassador said, “For instance, Philips is looking to expand its investment in India to manufacture more from India but sometimes you need some hi-tech components in the beginning which cannot be produced in India. Non-availability is a major problem.”

Appreciating the government’s philosophy of ‘Make in India’, the Ambassador said, Dutch companies are really willing to support the initiative. “A certain degree of flexibility in the implementation of ‘Make in India’ could be really helpful.”

A strong votary of a rule-based trading system, Berg also highlighted the difficulty in imports, non-tariff barriers and high rate of applied tariffs in India, which in turn is making exports costlier and uncompetitive.

“You need import, manufacture, finalise and then export them again. But if your inputs are extremely expensive that makes sure exports are also expensive. So, there could be an improvement,” the Dutch Ambassador said.

Highlighting that the ‘Ease of doing business’ in India has substantially increased over the years, Berg said, state governments are also very proactive and business-friendly in attracting foreign direct investment (FDI).

“For instance, there is a very good relationship between the Tamil Nadu government and the Netherlands. We are looking at increasing our collaboration further,” Berg said.

Currently, there are about 15 Dutch companies that have presence in Tamil Nadu. These include Shell Business Services, Randstad, Stahl India, and Paques B.V., among others.

Bilateral trade between India and the Netherlands grew 47 per cent to $12.87 billion in FY19 from $8.77 billion in the previous fiscal.

In the current financial year, bilateral trade between the two countries as of December 2019 stood at $9.13 billion.

“We have a very good base to start from and we are looking to further increase our trade and investment ties,” the Ambassador said on further investment plans in Tamil Nadu.

Published on February 28, 2020

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