The Modi government's production-linked incentive scheme for smartphones has received an overwhelming response from global sector leaders like Apple and Samsung. If it is successful, it can become the benchmark for 12 others sectors in which India has ambitions of emerging as the world's preferred manufacturing destination.
Three of Apple's largest contract manufacturers, Foxconn, Wistron and Pegatron, Samsung and domestic manufacturers like Dixon, Karbonn and Lava have applied for production-linked incentives (PLIs) to export more than $100 billion worth of mobile phones from India. The Empowered Committee formed for the purpose has cleared all the proposals and these will be placed before the Narendra Modi Cabinet for final approval maybe as soon as this week, a senior government official said.
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Samsung and Apple's three contract manufacturers account for the bulk of the proposed exports. Each has committed to export phones worth $50 billion each over the next five years.
In September last year, soon after announcing huge corporate tax cuts, Indian Finance Minister Nirmala Sitharaman had said: “I will go back and design in some way whereby I will identify those multinational corporations, American, European or British origin, who are moving out of China or who probably are even contemplating (such a step). I will make a blueprint with which I will approach them and put forward to them as to why India is a far more preferable destination.”
The government seems to have delivered on that intent. This is easily the most ambitious attempt by the Modi government to make India a global manufacturing hub for a major consumer durable. This is also showing results on the ground as two of the world's largest mobile phone makers and exporters are actually putting their investment dollars where their mouth is. If successful, this can emerge as a template for other sectors such as ACs, furniture, auto components, footwear, pharmaceutical ingredients, etc., in which the Modi government wants India to emerge as a global manufacturing hub.
In that sense, this the first Indian scheme that really challenges China′s position as the global factory for an important everyday use product.
The Modi government notified the PLI scheme to attract smartphone manufacturers to set up assembly and manufacturing operations in India in April this year. Till now, 97 per cent of Samsung's $2.5-billion mobile phone exports from India comprised handsets costing less than $200. The PLI scheme, which provides incentives worth $6.5 billion, will be applicable only to smartphones costing more than $200. This is expected to make India a hub for high value phones and leave the lower end phone making open to India's domestic phone manufacturers. This will facilitate the upgradation of their manufacturing skills and enable them to also enter the high-end phone manufacturing space over time.
Apple, meanwhile, has begun making its iPhone 11 and iPhone SE in India and will soon ramp up its numbers. The scheme will result in local value addition for smartphones made in India doubling to 35-40 per cent from 15-20 per cent now.
The government has also identified 12 sectors, such as air conditioners, capital goods, pharmaceuticals, food processing, agro-chemicals, modular furniture, man-made fibres, toys, auto components, leather goods, footwear and chemicals in which India can become a global manufacturing hub and attract companies looking for alternative investment destinations in the wake of the US-China trade war and the tensions over Hong Kong, South China Sea, Taiwan and the recent India-China border clashes.
India's Ministry of Commerce and Industry is working with key stakeholders including leading industry chambers, companies and others to prepare policies to make India competitive vis-à-vis peer nations that are also vying for investments from companies leaving China.
To facilitate the inflow of FDI, especially from such companies, it has been decided that the government's investment facilitation agency Invest India will appoint relationship managers to handhold investors from concept to cash flow. The condition: they must invest at least $500 million.
“The extraordinary response to the PLI shows enormous trust of the global community in India's manufacturing capability and leadership of Prime Minister Narendra Modi,” Minister Prasad was quoted as telling a leading Indian financial daily.
The success of this scheme will be keenly watched not only by Indian policy makers and administrators but also by foreign companies. If it succeeds and India does emerge as a viable alternative destination for making high end smartphones, the template can be replicated in all these other sectors with suitable industry-specific tweaks to facilitate faster flow of FDI.