India’s Prime Minister Narendra Modi speaks during the inauguration ceremony of the ‘Make In India’ week in Mumbai, India, February 13, 2016. REUTERS
BENGALURU, March 1 (Breakingviews) – India’s ambition to become a factory to the world can use a helping hand from China. The South Asian country wants to triple electronics exports to $300 billion, in about three years, but its firms lack the expertise to manufacture parts like display screens and camera modules – areas dominated by suppliers from the People’s Republic. Convincing them to set up factories in India will be tricky, but not impossible.
India has had a decent start so far. It became a net exporter of mobile phones in 2020 after introducing hefty import taxes, which forced handset makers including China’s Xiaomi (1810. HK), to move production to the country. As a result, and following a long push to force companies to make-in-India, local value addition, or the share of locally-sourced components, jumped, to 17% from just 6% between 2016 and 2018, according to Counterpoint research. Taiwanese firms Foxconn (2317. TW), and Pegatron (4938. TW), are also assembling iPhones in the country; JPMorgan analysts reckon India might produce one in four iPhones by 2025.
![Reuters Graphics](https://www.reuters.com/graphics/BRV-BRV/egpbalzbevq/chart.png)
Most of that, however, is in low-value manufacturing like smartphone assembly and producing batteries and chargers. To compare, Vietnam’s local value addition is 24%, largely thanks to investments from the $28 billion Shenzhen-listed Luxshare Precision Industry (002475. SZ), and Beijing-based BOE Technology (000725. SZ), a top maker of TV and smartphone screens.
Wooing those firms has been a thorny issue for India because of strained political relations with its neighbor. More than a dozen Chinese suppliers including Luxshare received initial approvals to set up, local factories over a year ago, according to Bloomberg. But progress appears to have stalled.
New Delhi is now mulling removing barriers to Chinese investments, provided the two countries’ shared border remains peaceful. It also recently cut import duties on some smartphone components, though they are still much higher than in Mexico and Southeast Asia. India’s deputy IT minister Rajeev Chandrasekhar recently warned in a government document seen by Reuters that the country must “act fast” to lure global companies with lower tariffs, or risk losing out to Southeast Asia and elsewhere.
In exchange for investment and expertise, Chinese firms would have better access to a thriving smartphone market. That is expected to triple to $90 billion by 2032, according to Morgan Stanley. Foreign brands operating retail stores in the country, like Apple (AAPL.O), have to source at least 30% of the product’s value locally.
India’s economy is growing fast and consistently beating market expectations; GDP expanded 8.4% in the December quarter from a year earlier, official data released on Thursday showed. Foreign direct investment is lagging, however. That could hobble the dream of creating jobs through manufacturing. India has had good reason to hold back the red carpet treatment on investments for a country nibbling at its border but Make in India can use some Chinese characteristics.
CONTEXT NEWS
India risks losing out to China and Vietnam as it seeks to become a major smartphone export hub and must “act fast” to lure global companies with lower tariffs, deputy IT minister Rajeev Chandrasekhar said in government documents seen by Reuters, the news agency reported on Feb. 13.
“India has high production cost due to highest tariffs amongst key manufacturing destinations,” wrote Chandrasekhar in the documents. A Jan. 3 letter and a confidential presentation drafted by Chandrasekhar was sent to the Finance Minister, Reuters added.
“The geopolitical realignment is forcing supply chains to shift out of China … We must act now, or they will shift to Vietnam, Mexico and Thailand.”
Editing by Robyn Mak and Katrina Hamlin