China is practically the world’s production powerhouse. And India wants to follow the same path. India’s Central government has approved three schemes to enable large scale electronics manufacturing and attract fresh investments worth almost INR 50,000 crore (US$ 6.3 billion) in the sector.

The government aims to provide companies a production-linked incentive of 4 percent to 6 percent on incremental sales for locally made goods over a period of five years. This not only includes mobile phone manufacturing but also assembly, testing, marking and packaging.

The other policy offers a 25 percent financial incentive for capital expenditure that goes towards “the manufacturing of goods that constitute the supply chain of an electronic product”. With these incentives, the government is optimistic that companies will come to India, contribute to progressing infrastructure, and make export-quality goods.

Inauguration of Samsung’s Noida Factory in India

According to their estimates, domestic value addition for mobile phones is expected to witness 35 to 40 percent jump by 2025, from the current 20-25 percent.

So far, companies have focused on assembling equipment like smartphones in India. A huge chunk of the components are still imported. These policy changes could act as a stimulant to locally source electrical components, semiconductors, as well as develop production clusters.

Bangalore and Hyderabad are infamous for their IT Tech Parks that house thousands of employees from IT service firms like TCS, Infosys, Accenture, and many more. Similarly, the government wants to create production clusters that can develop an eco-system of their own. These clusters can create a seamless supply chain when paired with proper land, air, and shipment infrastructure.

The timing of the announcement is what matters the most. China is embroiled in a trade war with the US for quite some time and we’ve seen how a giant like Huawei got caught in the cross-fire. Companies are skeptical about depending too much on China for production and sourcing. Hence, countries like Vietnam have witnessed a huge inflow of foreign investment from the likes of Nintendo, Foxconn, and even Samsung.

India is very much like Vietnam. A developing economy that’s on the look-out for foreign investment and enhances local production capabilities. This not only helps the government increase its tax revenue via taxation, but also provides employment. Considering the current Coronavirus crisis, it’s obvious that these plans may not materialize soon. But, as soon as the storm is gone, companies would want to find an alternative to China.

Prime Minister, Narendra Modi with Apple CEO, Time Cook

It’s reported that the alleged low-cost iPhone from Apple has been delayed due to the pandemic. Irrespective of the current health crisis, Apple has been trying to ramp up its local production in India and has done so, cautiously. India is the world’s second-largest smartphone market and every brand wants a piece of the cake. Realme and Xiaomi have been intensely fighting for supremacy, Samsung continues to lead via the offline market, and OPPO and Vivo have flooded all commercial banners with their products.

Xiaomi currently has seven plants in India, major ones being at Sri City and Sriperumbedur. It also makes its televisions in Tirupathi. Manu Kumar Jain, Vice President, Xiaomi, and Managing Director, Xiaomi India said that 95 percent of Xiaomi’s phones are made in India with 65 percent of a phone’s value being sourced locally. The government has been successful in compelling companies to make in India because it consistently kept on raising import duty on smartphones.

Samsung already has the world’s largest mobile phone factory in India that assembles top-tier variants, ready for export. We don’t know the volume it churns out right now, but their long-term investment is a precedent for other brands to take the market seriously. OnePlus has a research facility in Hyderabad where it makes software products intended for the Indian market.

Samsung’s factory in Noida, India

According to industry ICEA, the NOIDA region (a part of Delhi NCR) has close to 80 mobile manufacturing factories that provide employment to approximately 50,000 people. It’s normal today to see companies release press notes announcing new facilities across the country that’ll employ thousands of people.

Prime Minister Narendra Modi kickstarted the “Make in India” campaign five years ago to encourage foreign companies to invest and build in India. While its effects are debatable in a few industries, there’s no doubt that the mobile industry has picked up exponentially. State governments of Karnataka, Andhra Pradesh, Telangana, Uttar Pradesh, and Tamil Nadu have played a major role in establishing these clusters that symbolize progress.

Engineers are widely available in India, the country has developed multiple ports under the private-public model, and numerous airports are under construction. India is already the world’s second-largest smartphone maker, but the gap is huge. It’s about briding this. Obviously, the scale at which China produces is unmatchable. But that cannot undermine India’s efforts to be more relevant on the global stage. From a purely consumption-based economy, it’s slowly trying to turning into a production backed state.