Three proposals to incentivise global and Indian players to invest in manufacturing telecom and networking equipment, laptops, tablets, servers and API and advanced pharmaceutical products have been initiated. The goal is to cut dependence on imports and emerge as the new factory of the world.
The Modi government is pulling out all stops in its bid to position India as a major global manufacturing hub. Following the successful rollout of a production-linked incentive (PLI) scheme to attract global smartphone makers to set up factories in India, which attracted the likes of Apple’s contract manufacturers Foxconn, Pegatron and Wistron and Samsung as well as some domestic makers, the government announced it extend similar schemes for 12 other sectors.
Over the last few days, it has made good on that promise by announcing a slew of attractive PLI schemes for telecom and network equipment makers, pharmaceuticals and IT hardware such as laptops, tablets, PCs and servers.
Under these schemes, global and Indian companies will get incentives ranging from 1 per cent to 7 per cent of incremental sales over the base year. The total incentives on offer: about $4.8 billion.
These initiatives will take forward the Modi government’s agenda of creating an Atma Nirbhar Bharat (Self-Reliant India) and play a key role in achieving the government’s target of achieving a $1-trillion digital economy.
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Following the US-China trade war and latter’s deteriorating relations with the Free World in the aftermath of the Covid-19 outbreak and its military muscle flexing, many companies with large investments in China are looking at ways to derisk their global supply chains from over-dependence on one country.
India, Vietnam, Malaysia, Indonesia and Bangladesh are some of the alternative destinations they are looking at. The Indian initiative to attract investments is an attempt to take advantage of the window of opportunity that has opened up as a result of this global economic churn.
The Indian Cabinet has approved a $1.7 billion PLI scheme for telecom and networking equipment that will encourage global equipment suppliers such as Samsung, Nokia and others to Make in India.
“This scheme will also encourage exports of telecom and networking products ‘Made in India’. Support under the Scheme, ranging from 4-7 per cent, will be provided to companies engaged in manufacturing of specified telecom and networking products in India. With this scheme, India will be well positioned as a global hub for manufacturing of Telecom and Networking Products. Incremental production around Rs 2 lakh crore ($28 billion) is expected to be achieved over five years,” a government release said.
The government also unveiled a $1-billion PLI scheme for IT hardware makers to set up shop in India. This proposal envisages providing incentives of 1-4 per cent of incremental production over the production figures for 2019-20.
At present, India imports about 80 per cent of all laptops, tablets, PCs and servers used in the country. Even for products assembled in India, domestic value addition is only 5-10 per cent. This scheme will more than double this figure to 20-25 per cent by 2025.
The government estimates that the scheme will facilitate additional IT hardware production of $45 billion in India and enable the country to export $34 billion worth of such equipment over the next four years. It will also help create 180,000 new jobs over this period.
India has the world’s third largest pharmaceuticals industry by volume, which generates annual revenues of $40 billion. India supplies 3.5 per cent of the world’s pharmaceutical needs.
Despite these achievements, India remains critically dependent on China for active pharmaceutical ingredients (APIs), a key input in the production of medicines. It also depends almost totally on imported diagnostic kits and other such material.
To hasten the growth of the domestic industry and to reduce and, wherever possible, to eliminate its dependence on foreign sources, the government has announced a $2.1-billion PLI scheme for the pharmaceutical sector.
This is expected to attract foreign and domestic investments in high technology products in emerging fields such as in-vitro diagnostic devices and also in several drugs that are currently imported.
The government expects the scheme, which is likely to bring in fresh investments of more than $2 billion, to result in additional sales of $41 billion, two-thirds of which will be in the form of incremental exports.
Much before the global anti-China mood opened up a window of opportunity for India to position itself as an alternative global manufacturing hub, the Modi government had been taking far reaching steps to make India an attractive investment destination for foreign investors, especially in the manufacturing sector.
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In 2019, it had cut corporate rate taxes to 22 per cent for existing companies and 17 per cent for new manufacturing ventures. This has made India one of the lowest tax jurisdictions among its peer nations in the Asia.
Then, a progressive bankruptcy law that drastically cut the time needed to resolve insolvencies from an average of four years to less than one year has made life easier for investors. The ongoing labour reforms, the marked and continuing improvements in infrastructure, banking and financial sector reforms and new norms that allow private sector and foreign investments in sectors such as coal mining, space, atomic energy, defence and railways, among others, are part of this grand vision of making India the world’s next factory.