Notwithstanding the government’s coalition status after the 2024 general election, Prime Minister Narendra Modi has sounded confident in being able to carry forward his intention over the last decade to transform India into a global manufacturing hub. The launch of the ‘Make in India’ project in 2014, and later the Production Linked Incentives (PLI) scheme to attract domestic and foreign capital, are supposed to be a part of this agenda. The Bharatiya Janata Party’s election manifesto had three pages dedicated to manufacturing ambitions across different sectors. The Union Budget for 2024-25 provides a big fillip for the PLI scheme for large-scale electronics manufacturing through the allocation of ₹6,125 crore, an increase from around ₹4,499.04 crore in the 2023-24 Budget (₹4,489.46 crore as per revised estimates). The government’s focus on building expertise within the country is also visible in the allocation of ₹1,148 crore to research and development in the electronics and IT sectors, up from ₹600 crore in the 2023-24 Budget (₹1,000 crore as per revised estimates).
‘Make in India’ and China’s presence
Interestingly, one of the biggest beneficiaries of the ‘Make in India’ project in the electronics industry are Chinese smartphone companies. Their operations in India have spanned a decade, during which they have become dominant market players. According to the International Data Corporation’s Worldwide Quarterly Mobile Phone tracker, four of the top five best-selling smartphone brands at the end of 2023 were Chinese, with a combined market share of slightly over 50%.
That Indian consumers are one of the largest users of smartphones with the android operating system (whose market share as of 2023, is about 70%) has worked to the advantage of these companies. Chinese brands contain a range of applications catering to the diverse Indian tastes. These companies have expanded their production with active support from central and State governments. Well-thought out strategies in sales, aggressive marketing, calibrated customer segmentation and brand-building, sponsorships of popular culture entities, celebrity endorsements, and smart advertisement campaigns have powered their operations in India. They have penetrated beyond metropolitan regions, becoming easy reference points for Indian consumers.
Chinese companies have also been able to withstand the troughs and crests in India-China bilateral relations, until the Galwan valley incident in 2020. The subsequent shrill rhetoric in India of boycotting Chinese products intersected with the ‘vocal for local’ narrative of the Indian government. In addition to the increased scrutiny of Chinese investments for not adhering to tax-related compliances, the government is also seeking to ‘Indianise’ their operations and management in different ways: induction of Indian equity partners in local operations; appointment of Indian executives to top roles; involving Indian contract manufacturers for production and assembly; expanding exports from India, and hiring only local distributors. New Delhi’s directive underscores the long-term strategy of creating a robust network of indigenous manufacturers of sophisticated, precision devices. This approach, in fact, mirrors how China developed its own home-grown supplier companies, which have now expanded their operations into SouthEast Asia.
Attempts at some Indianisation
The entry of Tata Electronics as a contract manufacturer of smartphone devices is a noticeable example of growing Indianisation. It began by taking over the India operations of Wistron, and have covered much ground in their negotiations to acquire Pegatron, both Taiwanese suppliers for corporations including Apple.
Meanwhile, Chinese smartphone companies have treaded cautiously, by gradually beginning to comply with the Indian government’s directives. They have brought in Indian distributors, streamlined their structure by introducing separate sales and marketing operations for each individual brand, teamed up with domestic manufacturers to claim benefits of the PLI scheme, and are now increasingly seeking equity partners. This illustrates their adaptability to survive, evolve, and outlast phases of turbulence, while retaining consumer confidence. The promise and the potential in the sheer size of the Indian market, encourages this approach and a willingness to prepare for the long haul. However, while the Indian government ploughs on with measures to dilute and limit Chinese involvement — this includes attracting Taiwanese investments — there remain serious constraints.
Manufacturing of all smartphone components entirely in India, along with a robust supplier network, requires development of ancillary industries, clusters for technological knowledge-sharing, uninterrupted power and water supply, and better working and living conditions for the workforce. India possesses none of these at scale at the moment. Chinese companies also remain reluctant to share technology without clarity on their equity participation.
Ground reality
The push by India’s Ministry of Electronics and Information Technology and Ministry of Commerce and Industry to ease visa norms for Chinese technicians, within days of the new government taking office, underscores the difficulty for the government in conditioning and controlling both Indian and Chinese companies in the short to medium term. The Government’s Economic Survey, released a day before the Budget advocates promoting Foreign Direct Investment from China rather than being fixated on the China Plus One Diversification strategy of major multinational companies. Clearly, New Delhi will need to maintain a delicate balance between developing home-grown players and allowing continued Chinese investments and operations of Chinese companies in order to achieve its manufacturing objectives.
Anand P. Krishnan is a Fellow at the Centre of Excellence for Himalayan Studies, Shiv Nadar Institution of Eminence, Delhi NCR, and an Adjunct Fellow at the Institute of Chinese Studies, Delhi
Published - September 09, 2024 12:08 am IST
