Finnish telecommunications giant Nokia has told India’s government that the country is now its “least favorable market” to operate in and it makes better sense to export its products from China, a report said yesterday.
Nokia, which is fighting a 20 billion rupee (US$311 million) tax demand from Indian authorities, urged the government to “act quickly to correct the wrong perception of India as a place for business,” the Indian Express newspaper reported.
“The political risk of operating in India” has become “suddenly substantially higher and may inevitably influence future decisions to develop one’s operations in India,” Nokia said in a letter quoted by the daily.
The reported warning comes at a bad time for India when foreign direct investment has slowed to a trickle amid mounting domestic economic woes — including a plunging rupee, a huge current account deficit, slowing growth and perceived government policy paralysis.
The Finnish group did not immediately respond to requests for comment on the message, which the Indian Express said was dated June 19 and was received by the Ministry of Finance last month.
Nokia said its tax problems made it “more cost-efficient for Nokia to transfer the manufacture of mobile phones to China and to import them to the Indian market rather than manufacture them in Chennai.”
Nokia, which has one of its biggest plants worldwide in the southern city of Chennai, is among a string of multinationals in tax disputes in India, including Cadbury Royal Dutch Shell and Vodafone.
India has stepped up its pursuit of alleged tax delinquents in order to reduce a hefty budget deficit.
Nokia insists that software downloaded onto its mobile phones in India should be taxed in Finland under a bilateral treaty between the countries, but India’s tax authorities view it differently.
“Nokia does not think India can override its international obligations,” Nokia was quoted as saying.
Tax claims against Nokia and other multinationals have “too great an impact on the predictability and certainty of Indian business environment to be ignored,” Nokia added.
India — one of the world’s fastest-growing mobile phone markets — is the second-largest market for Nokia, which began operations in the country in 1995 and employs 8,000 workers directly in Chennai.
Nokia, which had been the country’s leading handset maker for 14 years, recently ceded its crown to South Korea’s Samsung.