NEW DELHI – Apple chief executive Tim Cook’s recent visit to India – his first in seven years – has accentuated the country’s growing importance as a manufacturing base for the American tech company.
Just 1 per cent of Apple’s iPhones were made in India in 2021, a figure that jumped to 7 per cent the next year as the company diversified its production bases, moving some from China.
This increasing reliance on India is part of a wider success story for the country’s manufacturing and export of electronics items. The electronics industry registered record exports valued at around US$23.6 billion (S$31.5 billion) in financial year (FY) 2023, compared with US$15.7 billion in FY2022, a jump of more than 50 per cent.
Much of this growth has been underpinned by mobile-phone exports that crossed the US$10 billion threshold for the first time in any financial year, touching an estimated US$11.12 billion in FY2023.
While the “China-plus-one” strategy, whereby companies seek to reduce their manufacturing reliance on Asia’s largest economy, has led foreign businesses to invest in India, this recent spurt has also been encouraged by government aid through a performance-linked incentive (PLI) to boost large-scale electronics manufacturing.
The temporary programme, which will run until 2026/2027 with a financial outlay of about 386 billion rupees (S$6.3 billion), seeks to incentivise companies that may otherwise choose to keep away from manufacturing in India, given the multiple challenges, including poor infrastructure and logistics.
Apple’s major contract manufacturers – Foxconn, Wistron and Pegatron – benefit from the PLI scheme to make iPhones in India.
Experts, however, say the country must focus on deepening its gains achieved in removing bottlenecks and improving the competitiveness of its business environment to ensure the momentum is sustained once government financial incentives run dry.
“Sometimes you have a lot of disamenities that cannot be addressed with incentives,” said Mr Tarun Pathak, research director at Counterpoint Research. He noted several persistent challenges, such as the dearth of a skilled workforce, regulatory red tape and high taxes. “I think these hurdles should eventually go because not all countries that have grown their electronics manufacturing have done so merely because of incentives.”
India has a target of achieving US$300 billion worth of electronics manufacturing by 2025 to 2026, with US$120 billion of this aimed at exports. Mobile phones alone are expected to contribute more than US$50 billion worth of exports by 2025 to 2026.
The country has been taking measures to further propel its manufacturing growth. For instance, policy reforms and a focus on improving logistics infrastructure have seen India climb six places – from 44 to 38 – in the World Bank’s Logistics Performance Index 2023 that was released recently.
A government thrust since 2016 to develop local supply chains for mobile-phone components has created a robust ecosystem that has enabled companies to source more of these parts from India and cut costs, noted Mr Pathak.
Yet, hurdles remain. While mobile-phone exports have been rising, Mr Pankaj Mohindroo, chairman of the India Cellular and Electronics Association, said India still needs to ramp up production for export in categories such as information-technology hardware, and automotive and consumer electronics.
“To become a powerful electronics economy, you can’t be standing on one leg of smartphones,” he said.
Plans to get Chinese companies, which command more than 60 per cent of the domestic smartphone market, to manufacture in and export from India have made little progress.
They continue to face regulatory pressures in the country amid growing tensions between Beijing and New Delhi as well as claims of tax evasion and unlawful remittances.
Mr Mohindroo said India will have to undertake further structural reforms to ensure that the country remains competitive once government incentives are withdrawn, especially in making its tax regime more familiar with “the complexities of electronics” that require the use and import of multiple components.
Imports of electronics items – valued at US$77.3 billion for FY2023 – also continue to be far higher than exports for the same category.
But Mr Mohindroo added that he is not too worried on this count, given India’s growing economy and consumer demand. “We need to grow our imports at least three times but at the same time we need to also grow our exports 20 times,” he said, calling for many more free-trade agreements “that should see India move towards as much free trade as possible”.
