Home / Opinion / Views /  iPhone 14 production doesn't mean India is ready to be an electronics hub

Less than a month after it was launched, Apple has started — successfully and quicker than expected — the production of its new iPhone 14 model in India. Apple is expected to move about 5 per cent of its iPhone 14 production to India, according to a JPMorgan research note.

This is good news. But no reason for complacency, something Indian policy ecosystem is typically prone to. For, there’s a long way to go before India can be taken as a serious global contender in electronics, the fastest growing manufactured exports segment in a rapidly digitalising world.

Remember India and Vietnam had similar value of electronics exports in 2010, and today, while India exports electronics worth $15 billion a year, Vietnam has raced ahead and exports $123 billion, according to data from the CEIC, the RBI and the Ministry of Commerce & Industry reported by ICRIER.

Countries that export more than India include Hong Kong ($320 bn), Taiwan ($183 bn), South Korea ($148 bn), Singapore ($126 bn) and Vietnam ($123 bn). China exports $900 billion (up from $400 billion in 2015 after it launched its ‘Make in China’ initiative).

India’s share of electronics manufacturing in GDP has stagnated in the last two decades, and exports of electronics have languished despite several government initiatives, ranging from Phased Manufacturing Programme (PMP) started in 2017 and the Production-Linked Incentives (PLIs) launched in 2020 to the ‘Make In India’ schemes rolled out from 2014 onwards.

Why are electronics not scaling up in India, while much smaller Asian countries are able to do so in relatively short periods of time?

You might also like

A five-chart report card on government finances in FY23 so far  

Savings fuel India's post-pandemic spending spree 

A wary govt adopts 2-stage process for IDBI stake sale

SUV play will bring Maruti benefits but just not much

The answer is simple. India’s policy ecosystem does not support scale-up; it's stuck in the pre-1990s pattern of thinking. The PMP and PLI policies lack coherence and work at cross purposes. While the PMP promotes import substitution, the PLI promotes exports. PMP insists on local production and content and therefore requires higher import duties, which negates exports by making domestic production uncompetitive globally. This is 1980s redux.

From 1984 till 1990, India’s production of electronics grew eightfold in six years, at an average annual growth of over 40 per cent. Sharp, Videocon, Onida, Uptron, Keltron and others grew rapidly to make over 1.3 million television sets, calculators, etc. But in the 1990s, this industry collapsed. Why? The spurt of growth had taken place under the protections of high tariffs. Shielded from competition from imports, these companies produced electronics of poor quality at prices higher than of global manufacturers. Indian consumers could buy electronics but at higher prices and of low quality. When Manmohan Singh-Narasimha Rao’s liberalisation policies in the 1990s started lowering the protection of tariff walls, these companies failed to compete with global companies and instead of becoming global giants lost out.

Remember, global scale is measured by how much the sector exports and not how much it produces within the country because domestic production can take place under the umbrella of protective tariffs, as India’s pre-and-post liberalisation experience shows.

Yet, India has been increasing import duties on electronic intermediate inputs, as well as final products, protecting uncompetitive manufacturers. For instance, the Union budgets for 2021-22 and 2022-23 increased import duties for camera modules, connectors, inputs for batteries, parts of mobile chargers and headphones and earphones, etc. This is no recipe for creating global electronics giants.

To achieve global scale, competitive domestic ecosystem of ancillary suppliers is needed. However, the higher tariffs are obstructing the industry’s growth to a critical level. Instead, India must encourage more of the final goods are assembled here, so that globally competitive companies can quickly scale up to critical levels, paving the way for them to then shift from assembling to manufacturing by locating larger chunks of the global value chain in India. Companies typically avoid shifting manufacturing to a country unless a certain threshold level of production via assembly is achieved. This is precisely how China and Vietnam grew their electronics industries so much, so quickly.

The production of electronics occurs mostly through global value chains (GVCs). Typical exporting country produces only a small part of the GVC within its borders, while importing many of the intermediate inputs from the rest of the world. This reliance on imports in the initial stages of scaling up should not distort India’s understanding of the electronics industry or policies aimed at promoting scale up. The government should, therefore, temporarily phase out domestic procurement and localization policies from the PLI and the PMP schemes to boost exports.

Given the turn in geopolitics and rising global concern over China’s policies, especially its approach to trade, and more immediately its unreliability for GVCs owing to its Zero-Covid crackdown, India has emerged as a candidate for global electronics manufacturers looking to relocate production in other countries. Apple, in particular, is under pressure to reduce its presence in China and diversify its production base as geopolitical tensions rise between Washington and Beijing, and China’s stringent pandemic crackdown continues to disrupt its business. But India must not forget that the gains from emerging geopolitics will not cancel out the deeply entrenched cost and policy disadvantages here and may not result in scaled-up production unless the policy flaws are corrected.

Elsewhere in Mint

In Opinion, Vivek Kaul reveals the British Raj did not steal just the Kohinoor. Deepro Guha & Aishwarya Viswanathan tell how to future-proof UPI’s ‘glocal’ payments model. Tyler Cowen presents a contrarian view on British PM Liz Truss's economic plan. Long Story narrates how China is forced to reel in its global tentacles.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

×
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout