Remaking Made in India will be a long slog

Wistron

19/04/2024 03:45

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Shritama Bose
       MUMBAI, April 19 (Reuters Breakingviews) - India’s $24
billion plan to become a rival to China's factory for the world
builds on the South Asian nation's subsidies and cheap labour.
Yet the production-linked incentive (PLI) scheme unveiled in
2020 is losing shine after a soaring start. If Prime Minister
Narendra Modi is re-elected, his flagship initiative to create
jobs and support self-sufficiency will probably get an overhaul.
    The PLI pays subsidies to manufacturers based on their 
output and on capital spending in sectors like semiconductors.
Such outlays helped quadruple mobile exports in three years.
Smartphone manufacturing is enough of a success for Modi to
trumpet India’s position as the second-largest handset maker in
his Bharatiya Janata Party's manifesto for elections that start
on Friday. 
    More Indians buying iPhones supports the presence of Apple’s
 AAPL.O  contract manufacturers Hon Hai Precision Industry
 2317.TW , Wistron  3231.TW  and Pegatron  4938.TW  in the
country, all of whom signed up for the scheme. Yet there are
worrying signs that what worked for data-enabled communication
devices may not for the 13 other sectors targeted by the scheme.
    True, India has reduced its external dependence on medical
devices, cutting net imports for the first time in 2023.
Investments in some other industries like automotive components
and batteries are in the early days of the scheme, making
success harder to judge. Yet despite starting payouts in eight
sectors, a mere 4% of the allocation has flown to industry so
far. 
    Firms in some sectors are too small to qualify for the
bounty. Take textiles. Over 60% of Indian fabric exports come
from small mechanised looms scattered across the country. The
subsidies on offer are for man-made fibres and technical
textiles, which require investments in large industrial parks by
companies with links to global value chains. 
    High tariffs on inputs are a dampener, too. The
administration is caught between using duties to curb inflows of
Chinese components required to build solar modules and making
local production cheaper. A similar tension was at play last
year when India aborted its attempt to regulate laptop imports;
Chinese components have accounted for 57%-100% of the country's
solar imports since 2021, per BloombergNEF. So it may not be
enough even if officials lower duties.
    Global manufacturers might be more willing to sign up to the
scheme if they know they can source components cheaply and from
across the border. Despite India’s move to fast-track visas for
Chinese nationals in November, Xiaomi  1810.HK  complains that
heavy scrutiny of companies based in the People’s Republic has
made smartphone component suppliers wary of setting up
production in the country. 
    India will need to work closely with the world's
second-largest economy to achieve its own manufacturing dreams.
That, though, may be easier to admit after the elections when
politicians can tone down the nationalist and protectionist
rhetoric. 
    Follow @ShritamaBose on X

    CONTEXT NEWS
    Apple has assembled iPhones worth $14 billion in India in
fiscal 2024, Bloomberg reported on April 10, citing unnamed
people familiar with the matter.
    India has paid $1.02 billion as incentives under its
production-linked incentive scheme to boost local manufacturing,
following over $13 billion in investments from private firms,
Rajesh Kumar Singh, secretary at the country’s Department for
Promotion of Industry and Internal Trade, told Reuters on April
4. The total allocation for scheme is $24 billion.
    The administration is mulling restructuring the PLI scheme
in sectors with slow progress, and even scrapping it in sectors
where investor interest is dim, India’s Mint newspaper reported
on April 3.
    

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Graphic: India’s share of iPhone production is rising    https://reut.rs/3U6gXKd
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 (Editing by Antony Currie and Katrina Hamlin)
 ((For previous columns by the author, Reuters customers can
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shritama.bose@thomsonreuters.com; Reuters Messaging:
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