News & Analysis

Make in India Success – Not Yet! 

For India’s efforts to get capital investment into manufacturing to succeed, it needs to purge away cheap Chinese imports

The ‘Make in India’ initiative has witnessed some degree of success, though one could argue that a chunk of it has come about as a result of Chinese companies setting up assembly units in the country. Research shows that the country assembled two billion smartphones and feature phones between 2014 and 2022. 

According to a research note by Hong Kong-based CounterPoint 98% of all mobile phones within India were produced locally with 16% also being exported. Barely one-fifth of the total handsets were produced locally in 2014. This could be directly attributed to India’s Production-linked Incentive (PLI) scheme that was launched to spur domestic output. 

The burgeoning trade imbalance with China

However, a flip side of this story is that India’s trade with China over these years presents a very sharp skew in favor of our eastern neighbor. Of the $117 billion in goods that flowed between the two countries in 2022, 87% came from China. Data from the IMF (courtesy: The Economist)

India’s recent efforts to correct this anomaly came in the form of the requirement for licenses to import specific goods. For some time now, the Indian consumer has relied on cheap Chinese imports while local industry has shipped in raw materials / parts from China. India’s export basket comprises cotton, granite, diamonds etc. thus resulting in this burgeoning trade gap. 

India’s tactical nous needs to take centerstage

It is quite obvious that the federal government wants to reduce this dependence on China on two fronts – the first being strategic reasons as the two countries have been at loggerheads over their border issues. The second is commercial as India is seeking to replicate China’s export-focused model that means seizing some of the neighbor’s customers. 

The licensing restrictions need to be perceived more as a tactical move to coerce industry into making capital investments directly or through contract manufacturers in new avenues such as laptops, personal computers, cameras, and printers. Over the past couple of years, India has moved in to curtail Chinese imports using tariff barriers, security and licensing. 

How will the PLI scheme play out now?

It is interesting to note that India gave 430-plus FDI approvals since 2020 of which only three happened during Fiscal 2023. In this period, several proposals from China were either left hanging or rejected downright. Among these, Apple’s Chinese contact manufacturer Luxshare’s case is unique whereby despite an agreement with the Tamil Nadu government, things haven’t moved as yet while others like Foxconn have already upped iPhone output from India. 

In parallel, India’s PLI also lured away drugmakers from procuring ingredients from China. The government promised to hand out $2 billion over six years this February to companies that can manufacture 41 of these substances domestically. Now, we hear that similar arrangements are in the offing for Tesla to manufacture its electric cars for the export market. 

As we speak, the government has said that it has no plans to extend the PLI scheme for the automotive industry though there are discussions around allowing the railways to get into the act by setting up manufacturing of locomotive and rake parts in the country. The contours of this scheme is currently under preparation, says a published report in the ET. 

However, what remains to be seen now is whether the success of these experiments around mobile handsets and pharma could translate into other more capital intensive segments of the industry. India’s efforts to create a semiconductor capability in-house has made all the right headlines in recent times, but may take longer before the first microchip is Made in India. 

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