Mahindra and Shaanxi Automobile Group propose USD 3 billion joint venture in India

In a significant development for the Indian automotive industry, sources close to the matter have revealed that Mahindra & Mahindra, a leading Indian automaker, and China's Shaanxi Automobile Group have reached an agreement to establish a USD 3 billion joint venture in India. The proposed venture, which aims to construct a car manufacturing plant, is currently awaiting approval from the Indian government, highlighting the complex interplay between economic opportunities and geopolitical considerations.

According to two sources with direct knowledge of the situation, Mahindra is set to hold a majority stake in the proposed manufacturing venture. The plant is slated to be located in Gujarat, the home state of Prime Minister Narendra Modi, potentially adding political significance to the project.

The ambitious proposal encompasses the creation of an export-oriented, integrated manufacturing hub that would produce assembled cars, engines, and car batteries. This comprehensive approach suggests a long-term commitment to establishing a significant presence in India's rapidly growing automotive sector.

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However, the path to realising this joint venture is not without obstacles. Since 2020, following deadly border clashes between India and China, the Indian government has implemented stringent restrictions on Chinese investments in the country. As a result, Mahindra has had to seek explicit government approval for the Chinese investment component of this venture.

The need for such approval has led to delays and cancellations of numerous investments from Chinese companies in recent years. High-profile cases include proposals from BYD Co Ltd, Great Wall Motor, and SAIC's MG Motor, which have faced extended scrutiny or outright rejection due to security concerns. A notable example is BYD's USD 1 billion proposal from last year, which remains in limbo due to these concerns.

Despite these challenges, there are indications that India may be reconsidering its stance on Chinese investments, particularly in non-sensitive sectors where the country lacks expertise, such as solar panels and battery manufacturing. This potential shift in policy is partly driven by a significant drop in foreign investments, which have fallen to 17-year lows.

Recent statements from top Indian government officials suggest a possible review of the current restrictions. Finance Minister Nirmala Sitharaman has expressed support for the views of Chief Economic Adviser V Anantha Nageswaran, who recently advocated for promoting foreign direct investment from China to boost India's exports.

The Mahindra-Shaanxi joint venture proposal comes at this critical juncture, potentially serving as a test case for India's evolving approach to Chinese investments. If approved, it could signal a new chapter in Indo-Chinese economic relations, particularly in the automotive sector.

However, it's important to note that Mahindra has issued a statement to the stock exchange denying the reports, calling them "unfounded" and asserting that "there is no truth in the matter." Despite this denial, Mahindra's shares rose by 2.5% on the Bombay Stock Exchange following the initial reports.