Manufacturing hub ambitions aren’t served by statist policies
Narendra Modi came to power in 2014. From being a net importer, India has become a net exporter of handsets. Elsewhere in Asia, the contest is over semiconductors.
From Thailand to Singapore and Malaysia, several countries are now in the fray to shift the locus of front-end chip manufacturing from East to Southeast and South Asia. India is trying to get in via packaging and testing. While those plans are yet to bear fruit, cheap labour has made the nation an upcoming rival to Vietnam in a low-value-added activity like assembling electronics parts.
The pandemic and China’s souring relations with the West have changed the thinking of multinationals. A Foxconn plant in Tamil Nadu is preparing to deliver iPhone 15s only weeks after they start shipping from factories in China. The likes of Apple are reluctant to rely too heavily on China to feed global demand.
Their quest for a China+1 strategy has presented India with a chance to storm the supply chain. Vietnam’s phone exports last year were six times India’s, thanks to Samsung. It is this gap that New Delhi wants to close.
However, conflating correlation with causation could jeopardize this goal. Just because an apparent change in Indian fortunes has occurred despite a lurch toward protectionism, critics are being dismissed who dare to question the wisdom of the tariff-subsidy combo. The official view is that as long as exporters can claim back the duties on imported parts, they won’t grumble about India’s cost disadvantage against Vietnam.
The Modi government in 2018 announced a “calibrated departure" from more than two decades of greater trade openness, and raised import duties on mobile phones to 20% from 15%. That project has continued unabated. In 2020, the duty on
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