India’s Manufacturing Incentives: A Strategic Shift Towards Self-Reliance
India is witnessing a transformative phase in its manufacturing sector, marked by strategic government initiatives aimed at reducing dependency on imports, particularly from China. The inauguration of India’s first Apple retail store in Mumbai on April 17, 2023, is a testament to the burgeoning investments in the country’s manufacturing landscape. This milestone is not just symbolic but also indicative of the broader economic policies that have been set in motion since the launch of the Production-Linked Incentive (PLI) scheme in 2020. The PLI scheme, which offers cash incentives ranging from 4% to 6% on incremental sales across 14 sectors including electronics, pharmaceuticals, and textiles, has been pivotal in attracting substantial investments and bolstering manufacturing capabilities within the nation.
The impact of the PLI scheme has been profound, as highlighted by Amardeep Singh Bhatia, a government official who emphasized its success in drawing investments and enhancing manufacturing activities. India has rapidly ascended to become a major global hub for electronics manufacturing, with a particular emphasis on smartphones. The country now stands as the second-largest producer of mobile phones globally, a remarkable achievement that underscores the effectiveness of the PLI incentives. These incentives have catalyzed production worth approximately $131.6 billion and have generated nearly one million jobs over the past four years, showcasing the scheme’s significant contribution to the economy.
Building on this momentum, India is now poised to expand its domestic manufacturing portfolio to include laptops, tablets, computers, and servers. In line with this objective, the government has extended the ‘import management system’ for laptops and tablets imports for an additional three months. This move aims to curb imports from China and stimulate local production in the IT hardware market, which is estimated to be worth nearly $20 billion. In previous attempts to reduce imports, the Indian government had considered implementing a licensing regime for shipments of imported laptops and tablets. Such measures reflect a concerted effort to foster self-reliance and bolster domestic manufacturing capabilities.
The government’s commitment to nurturing the IT hardware sector is further evidenced by the approval of incentives for 27 IT hardware manufacturers, including industry giants like Acer, Dell, HP, and Lenovo. These incentives are expected to drive production worth $42 billion in the coming years. Ajay Srivastava of the Global Trade Research Initiative underscores the strategic importance of developing indigenous laptop manufacturing capabilities. With rising incomes, expanding business activities, and a growing education sector, the demand for laptops and other devices in India is surging, making local manufacturing not only feasible but also economically advantageous.
Dixon Technologies, a prominent local electronics manufacturer, has emerged as a key player in this evolving landscape. Having qualified for the PLI scheme, Dixon aims to meet 15% of India’s domestic demand for laptops by 2025/26. The company plans to scale up its manufacturing capacity to 2 million units by 2026 and is committed to securing local manufacturing components in the future. Such ambitions align with the broader national agenda of reducing import dependency and fostering a robust domestic manufacturing ecosystem.
The government’s efforts to streamline processes and facilitate growth in the electronics sector extend beyond manufacturing incentives. S. Krishnan, Secretary of the Ministry of Electronics and Information Technology (MEITY), recently announced a streamlined visa process and efficient procedures for companies under the PLI scheme. This initiative prioritizes essential visas for the electronics sector, ensuring that skilled personnel can contribute to the industry’s growth without bureaucratic hindrances. Krishnan also highlighted a focus on component manufacturing for global exports and increasing domestic value addition from the current 18-20% to 35%, thereby enhancing the competitiveness of Indian products in the global market.
India’s journey towards becoming a global manufacturing powerhouse is underscored by its impressive achievements in the mobile phone sector. With annual production valued at ₹4.1 lakh crore, India has firmly established itself as the world’s second-largest mobile phone manufacturer. The overall electronic manufacturing sector in the country is worth ₹9.52 lakh crore, reflecting the substantial growth driven by strategic government policies such as the Product-Linked Initiative (PLI) and the Phased-Manufacturing Programme (PMP). Despite these advancements, India’s domestic value addition (DVA) stands at 18-20%, significantly lower than China’s 40%. However, it is worth noting that fifteen years ago, China’s DVA was merely 3.6% when they commenced assembly operations.
Addressing the additional cost disabilities faced by Indian manufacturers is crucial for further reducing manufacturing costs and enhancing competitiveness. Currently, India imposes higher tariff rates on 35 components, while China maintains a maximum tariff of 10%. A report by the Broadband India Forum (BIF) suggests that reducing additional cost disabilities such as corporate tax, logistics, skill gaps, and power can lower manufacturing costs by 4-5%. The report also recommends creating a conducive environment for research and development to improve domestic value addition, emphasizing that India has the potential to reach the level of China’s DVA by addressing these critical issues.
The Department of Telecommunications has been urged to revoke the requirement of IMEI registration for mobile phones intended for export, as this adds to the additional cost disabilities faced by Indian manufacturers. Reducing such regulatory burdens will make Indian products more competitive in the global market. Furthermore, the government’s efforts to streamline the visa process and focus on India-designed and developed mobile phones can significantly boost the growth of the electronic manufacturing sector in India. The strategic alignment of policies and incentives is crucial for sustaining the momentum and achieving long-term self-reliance in manufacturing.
The success of India’s manufacturing incentives is also reflected in the significant increase in mobile phone manufacturing value over the last decade. Strategic government policies such as the Product-Linked Initiative (PLI) and the Phased-Manufacturing Programme (PMP) have played a pivotal role in this growth. According to a report by the Broadband India Forum (BIF), local production in the electronics sector has nearly doubled in recent years, driven primarily by the surge in mobile phone manufacturing. Major global manufacturing companies like Samsung, Apple, and Google are now producing their latest generation smartphones in India, further validating the country’s manufacturing prowess.
The BIF report, prepared by Koan Advisory, delves into various factors influencing the electronics manufacturing sector, including tariffs, global value chains, ease of doing business, and gender diversity. TV Ramachandran, President of BIF, credits the ‘Make in India’ initiative for attracting global players and encouraging domestic manufacturers. This initiative has resulted in a significant surge in mobile phone production and job creation in the manufacturing sector. The Secretary of MeitY, S Krishnan, reiterates that India is now the second-largest manufacturer of mobile phones globally, a testament to the government’s focused efforts in supporting PLI beneficiaries and improving the business environment.
Finance Minister Nirmala Sitharaman recently highlighted the maturity of India’s mobile phone industry, with increased domestic production and exports. Apple, for instance, is planning to develop the iPhone 17 in India by 2024 and aims to increase the percentage of locally made phones to 25%. The Economic Survey reports that exports of electronic goods are growing at a rate of 55%, supported by incentives that bolster local firms. This impressive growth trajectory underscores the importance of strategic government policies and the collaborative efforts of industry stakeholders in driving India’s manufacturing renaissance.
In conclusion, India’s manufacturing sector is on a transformative path, driven by strategic government initiatives aimed at reducing import dependency and fostering self-reliance. The success of the Production-Linked Incentive (PLI) scheme, coupled with streamlined processes and a focus on enhancing domestic value addition, has positioned India as a formidable player in the global manufacturing landscape. As the country continues to expand its manufacturing capabilities and attract investments, the vision of a self-reliant India is steadily becoming a reality. The collaborative efforts of the government, industry leaders, and stakeholders will be instrumental in sustaining this momentum and achieving long-term economic growth and prosperity.