India has welcomed the likes of Apple, Samsung, Airbus in its bid to become the world's factory, but it may take longer to catch up with China.
Today, Apple's iPhone 15, Google's Pixel 8, and Samsung's Galaxy S24 are manufactured in India. Elon Musk is even considering setting up an electric car factory in the country.
Apple was one of the first to open up opportunities for India to become the world's factory. Le Monde called the company's decision to invest in the South Asian country in 2017 a "gamble". At that time, they started by assembling low-cost iPhone models, then expanded their scale thanks to manufacturing partners from Taiwan, such as Pegatron and Wistron.
Five years later, Apple accelerated and began manufacturing its latest phone models here, first the iPhone 14, then the iPhone 15. Currently, about 12-14% of the "bitten apple" phones sold worldwide are manufactured in India, and will increase to 25% by the end of this year.
A man walks past an advertisement for Apple Iphone 15 in Kolkata, India on November 6, 2023. Photo: AFP
The arrival of this giant has excited Indians, from the middle class, government members, to movie stars and even local business leaders.
Anand Mahindra, Chairman of Mahindra & Mahindra Group, excitedly posted on social media X in October: "I recently went to a Verizon store in the US to buy a sim and proudly told the sales person that my iPhone 15 is made in India." He declared that he would immediately buy a Google Pixel 8 when the locally made version goes on sale.
'Make in India'
India's Commerce and Industry Minister Piyush Goyal hopes Apple's example will send a "strong signal" to global companies. The country's smartphone exports doubled in the fiscal year ending March 2023 to $11 billion.
A decade ago, Prime Minister Narendra Modi’s government outlined its long-term ambition to turn the South Asian nation into the world’s new factory. “I want to appeal to the world: ‘Come make in India,’” he declared in his Independence Day speech in 2014.
To make this happen, India launched the “Make in India” initiative to boost the manufacturing sector, which accounts for just 17% of GDP. The strategy includes raising import tariffs to encourage domestic production. By 2022, these tariffs had risen to an average of 18%, higher than Thailand and Vietnam.
"Historically, the South Asian country has not been very open to international trade and the government's strategy - quite fundamentally - has been to limit imports, especially from China, with high tariffs and export subsidies," said Catherine Bros, professor of economics at the University of Tours and researcher at the Laboratoire d'Économie d'Orléans (France).
In 2020, they introduced a form of export subsidy called "Linked Incentives", pouring nearly 22 billion USD into 14 key sectors, such as the production of smartphones, medical products and auto parts.
High economic growth (7.3%) and the world's largest population - 1.4 billion people - are also advantages that help the South Asian country attract corporations wanting to access this booming market. Vivien Massot, CEO of economic risk analysis company Tac Economics, for example, many French companies come to produce here to access the domestic market, rather than export.
India is set to see $71 billion in FDI in the 2022-23 financial year, with $33 billion in the first half alone. At the World Economic Forum (WEF) in Davos last month, IT Minister Ashwini Vaishnaw said the country aims to attract $100 billion in foreign direct investment annually over the coming period.
To achieve this, they improve four drivers, including infrastructure (physical and digital), improving the lives of the lowest income class, promoting production and simplifying procedures.
In its latest effort, India said last week it would allow 100% FDI in satellite manufacturing and ease regulations on rocket manufacturing, aiming to increase its share of the global space market. This would open up easier entry opportunities for key players such as SpaceX, Maxar, Viasat, Intelsat and Airbus. According to experts, commercialization and satellite manufacturing is a lucrative field with many viable partnerships.
Not easy to replace China
But the South Asian nation still has a long way to go before it can replace China in global trade, experts say. Vivien Massot says China accounts for 30% of global value added in manufacturing, 10 times more than India. “The manufacturing sector needs to grow very rapidly over the next 20 years to catch up,” he says.
Professor Bros said that looking at the global value chain, India is not in the same segment as China and is quite downstream. "The substitution effect is negligible and only happens for products like iPhones," he said.
A recent move is a testament to that. On January 30, the country reduced import tariffs on some smartphone components, many of which are imported from China, in a bid to create a more favorable ecosystem.
In addition, the South Asian giant faces a number of other challenges if it wants to become a new world factory. These include underdeveloped infrastructure and unstable electricity supply, despite its significant efforts over the past 10 years.
In terms of human resources, while its top engineers have an excellent reputation around the world, the country also faces a shortage of skilled workers. About 350 million people cannot read or write, and only a small fraction of the population has any professional training.
In addition, experts say New Delhi's economic policy remains largely interventionist to appease investors when needed. For example, in August 2023, the government suddenly restricted laptop imports to boost domestic production.
Anand Parappadi Krishnan, a research fellow at the Centre of Excellence for Himalayan Studies at Shiv Nadar University, points out that the fundamental problem is that the government does not have a coherent industrial policy. It has taken a piecemeal approach, unlike China’s holistic approach. Southeast Asia has also emerged as a choice for multinational companies in the “China plus one” strategy.
"India is feeling the stones to cross the river," he summarized, borrowing a Chinese idiom.
Phien An ( according to Le Monde, Reuters )
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