Editorial: Think different

Last week, Union Railways and Electronics and IT Minister, Ashwini Vaishnaw had announced that Apple’s latest iPhone 16 is being produced and launched globally from Indian manufacturing plants. The ‘Make in India’ models will be rolled out for domestic sales as well as for exports to other nations. The announcement was greeted with cheers from stakeholders in India Inc, as well as the general populace who viewed this development as an affirmation of India's growing relevance in the global electronics manufacturing arena, much to the chagrin of neighbouring China, which is known as the foundry of the world.

The upside of the episode is that this might be a first for India — a global tech giant shipping a product made in Indian factories to the international market, within a few days of the commencing of sales. It is noteworthy that the Cupertino-based electronics giant chose India as its second manufacturing location in an attempt to diversify its supply chains. Until 2021, the iPhone was manufactured entirely in China. But ever since production expanded to India, the company has created 1.5 lakh direct jobs as well as 4.5 lakh indirect jobs in the country, while manufacturing phones worth $14 bn, and exporting phones worth $10 bn annually. iPhone exports continue to clock around $1 bn each month thanks to the Centre’s production-linked incentive (PLI) scheme. Per JP Morgan, this is only 14% of iPhone's global production, which the company hopes to push up to 26% in another two years.

That was the rosy part of the story. Celebrations aside, there are some nitty-gritties that need to be addressed, and which might help calibrate our expectations on the macroeconomic front. For starters, industrial success is an elusive entity for India — manufacturing makes up under 15% of our GDP, employs 11% of our population, and ends up exporting just 2% of global goods. India’s transformation into a genuinely viable export hub will require the country to step into the cutthroat-competition zone of component manufacturing, which represents 85% of the value addition. The rising import of mobile phone components (key intermediary inputs) brings with it the additional burden of higher import tariffs.

This plays to the hands of nations with lower import tariffs, such as China, Vietnam and other competitors. This has prompted many policy experts to suggest that India must drop its tariffs to competitive levels while seeking a sunset clause on high tariffs for every PLI scheme. Interestingly, this week, the government said it will launch the next phase of the India Semiconductor Mission over the next six months, which will focus on developing new areas as semiconductor hubs. Launched in December 2021, the Mission has Rs 76,000 cr allocated for PLI. The government is said to chip in with 50% fiscal support for semiconductor fabs, display fabs, compound semiconductors, silicon photonics, sensors, discrete semiconductors and ATMP/OSAT facilities.

Needless to say, for India’s manufacturing dreams to become a reality, the administration needs to pull out all stops. India hasn’t yet started investing in R&D, a major pain point when it comes to the creation of world class products. Industry-academia integration will now prove to be even more critical for pushing apprenticeships, internships and on the job training. The iPhone success story could inspire several labour intensive sectors, not just to build competencies but help usher economic reforms in land, labour as well as capital.