The mirage of Make in India

A couple of days back there was a notification from The Directorate General of Foreign Trade (DGFT) banning the imports of Laptop and Servers with immediate effect without thinking about the repercussions of immediate change. The logic for such a change was to promote Made in India and to ensure that the Laptops and Servers meant to be sold in the Indian market are manufactured in India.

We have seen something similar happening in the cell phone space too, where driven by the Make in India and other policy decisions there was a sudden jump in the manufacturing units dealing with mobiles. However, the main thing to note is, that none of the mobiles are actually getting manufactured in India, they are mostly only assembled in India.

If we look at one of the papers from the Indian Institute of Management, Bangalore and Counterpoint Research we find that more than 90% of the components are manufactured in China or Taiwan and they are merely assembled in Indian manufacturing units. The actual value addition by India is less than 10% (mostly coming from packaging materials, cables, housing etc.).

Looking at similar data points from different sources leads to a similar conclusion, that the actual value addition by India is miniscule. Yes, shifting the manufacturing of cellphones has resulted in the creation of some jobs and facilities but we never tried to actually increase the value addition from India, as we lack the capability to manufacture even the most basic of the components in India.

Now suddenly restricting the import of Laptops and Servers and moving the manufacturing to India is a knee-jerk reaction at best. Fortunately, DGFT took the immediate restrictions back allowing for a three-month period for the affected stakeholders to plan for the change.

However, even after three months or whenever the changes finally take place, wouldn’t the story remain same, that actually Indian manufacturing units will only be assembling these laptops and servers rather than manufacturing?

The actual idea of Make in India for electronic products requires a much more focused and strategic approach and an acceptance that Make in India is not working out at least when it comes to electronic goods. Once we accept that it’s not working then we can find out the reasons and formulate the strategy and policy to ensure that those issues are addressed. One of the big issues is the availability of a skilled workforce, which has been a neglected aspect for decades.

We are doing great in terms of semiconductor design, we have a huge presence in the R&D space of almost all the major semiconductor design houses like Intel, ARM, Texas Instruments, Infineon, ST Microelectronics, Nvidia etc. Instead of focusing on this and how to improve on our design strength we are trying to beat China in manufacturing, which according to me is not working out.

We are providing huge subsidies to lure semiconductor manufacturers to build their plants here in India, for example, the recent Micron deal of $2.75 Billion, 70% of it $1.925 billion will be borne by the Union and the Gujrat government, it is a kind of lavish subsidy no one else is offering anywhere in the world. Yes, incentives are required, but what we are doing is just too much, no where in the world governments are known to spend ~$2 billion to attract an investment of $825 million. We can argue that it’s a strategic policy step, but then I would say it is a big miscalculation, we could have gotten away by subsidizing a lot less and used that money to improve the skills and training for the masses.

We are pushing too much for Make in India and spending a lot of amount without looking at the history of other areas namely cellphone manufacturing which has been happening for quite some time without delivering on any of the past promises to increase the value addition from India.

References

[1] MAXIMIZING LOCAL VALUE ADDITION IN INDIAN MOBILE PHONE MANUFACTURING: A PRACTICAL PHASED APPROACH, Tarun Pathak, Prof. Chirantan Chatterjee & Neil Shah.