Making in India

Policy needs to go beyond PLI

Government intervention doesn’t always yield the intended results. The Union government, for instance, had announced in August that it would bring seven products in the information technology (IT) hardware segment to the restricted category. While the plan was deferred till October 30 and the government clarified its position, the market sensed possible uncertainty, at least in the short run, and advanced imports. As a result, imports of computers, laptops, and related products surged 42 per cent in September to $715 million. The Union government has been trying to reduce import dependence on China for quite some time, partly because of the broader geopolitical conditions. This particular policy was also seen in this context. The other reason for restricting imports is to push domestic production, and IT hardware is part of the government’s production-linked incentive (PLI) scheme.

The government recently tweaked the PLI scheme for the IT hardware sector and nearly doubled the incentive to about Rs 17,000 crore after the initial scheme got a lukewarm response from manufacturers. It remains to be seen whether increased incentives and possible restrictions on imports will push large manufacturers to develop facilities in India. Also, will it actually help contain imports from China? In this context, as this newspaper reported on Monday, India’s largest domestic electronics manufacturing services company, Dixon Technologies, has committed cumulative production worth Rs 48,000 crore in six years and has been found eligible for PLI incentives in the IT hardware sector. Approval has also been granted to the likes of Dell, HP, Foxconn, and Flextronics. Dixon will make an investment of Rs 250 crore in this regard. It has been reported that the company, which makes laptops for Asus, a Taiwanese company, is also in talks with Lenovo of China, among others, to make laptops.

If an Indian firm produces for a large Chinese company, it is likely to import most of the components from China and assemble them here. Other firms are also likely to do the same. It is thus plausible that even if some assembly work shifts to India, the level of imports in the category would not come down significantly. There are reasons why such hardware components are not made in India and it is not clear if the PLI scheme will shift a significant part of the value chain to the country. One of the ways the policy could have shifted some level of actual manufacturing to India is by adding the condition of value-added to be eligible for incentives under the PLI scheme.

Moving the final assembly work to India will undoubtedly create some jobs, but is unlikely to take it very far or substantially reduce imports. In fact, India’s import of IT hardware items that now require approval from the government was just $8.8 billion in 2022-23, compared to total imports of about $900 billion. Nonetheless, promoting domestic production is a worthy goal and must be pursued. India needs to create jobs for its increasing workforce at scale. However, this will require creating conditions for attracting investments. Recently, one of Apple’s biggest manufacturers decided to shift out of India after it failed to expand operations for about three years. India needs to avoid such outcomes. Modern manufacturing depends on complex value chains and a number of things need to fall in place for a country to succeed. Policy needs to go beyond import restrictions and fiscal incentives.