By Wasana Nadeeshani
India (Commonwealth Union)_ Apple’s little step might be a tremendous leap for the Indian economy. The business has revealed that their flagship iPhone 14 will be manufactured in southern India. It will be the first time Apple has manufactured a cutting-edge phone in the nation so close to its release. Apple’s move has been seen by supporters of the ruling Bharatiya Janata Party as a vote of confidence in Prime Minister Narendra Modi’s efforts to stimulate industrialisation through increased tariffs and production-linked subsidies. However, India’s state-led industrialization programs have already failed. This time might not be an exception.
Manufacturing quality is critical. India’s success in software-services exports (which totaled $172 billion last year) may boost national pride while also generating vital foreign cash. However, it has only produced a small number of employment thus far. In a country of 1.4 billion people, India’s information-technology business directly employed just 5.1 million employees last year. Without vigorous manufacturing, no great nation has progressed from poverty to wealth.
Successive governments in New Delhi have failed to devise policies that would allow tens of millions of laborers to transition from subsistence farming to more productive manufacturing employment. PM Modi committed eight years ago to expand manufacturing’s contribution of India’s gross domestic product from 15% to 25%. It has barely moved.
Optimists feel India’s time has finally arrived. The Apple announcement coincided with the presentation of optimistic economic forecasts for the country. According to JP Morgan, Apple might manufacture a quarter of its iPhones in India by 2025, up from roughly 5% presently. In a recent research, Morgan Stanley predicted that India will become the world’s third-largest economy by 2027. It forecasts that manufacturing’s proportion of GDP would rise to 21% from 15.6% by 2031, and that India’s share of global exports will quadruple.
Global events might be beneficial. China’s blunders—intensified geopolitical rivalry with the United States, a ludicrous and onerous zero-COVID policy, and heavy-handed government intervention in the economy—have put in motion a restructuring of global supply networks that India might benefit from. As firms hunt for new production locations, India, which will overtake China as the world’s most populated nation next year, provides a potentially big market. The democratic West and its Asian allies have solid ties with New Delhi, lowering the likelihood that the US may implement measures that make doing business with India more difficult.
However, while geopolitics may have provided favorable tailwinds, it is unclear if New Delhi knows how to steer. India’s manufacturing policy is based on a combination of hiking tariffs and compensating enterprises to reach production objectives. Over the next five years, the federal government will award up to 2 trillion rupees ($24.3 billion) to enterprises that meet benchmarks in 14 areas of the economy, including semiconductor, vehicle, and solar-panel manufacture. The government predicts that these incentives would generate 30 trillion rupees ($365 billion) in economic activity and create six million new employment over the next five years.
Some consider Apple’s latest announcement as indication that this tactic is succeeding. Rajeev Chandrasekhar, the minister for electronics and information technology, claimed in a Times of India op-ed that incentives for smartphone makers had already produced over 100,000 employment. The government anticipates mobile phone exports to reach at least $8.5 billion this year, up from $5.8 billion last year. Last year’s amount is around 30 times that of India’s mobile phone exports five years ago.
Nonetheless, there are reasons to be wary of New Delhi’s attitude. Under PM Modi’s leadership, India has withdrawn from international trade treaties such as the 15-member Regional Comprehensive Economic Partnership, making it less enticing to corporations trying to diversify their supply chains. Arvind Subramanian, a former senior economic advisor to the Indian government, finds parallels in spirit with India’s infamous license-raj, which provided the government a chokehold on the economy from the 1950s until the advent of liberalization in 1991. Mr. Subramanian identified problems in India’s plan in an interview with an Indian website earlier this year, including too much state discretionary authority, the difficulty of terminating subsidies, and an overemphasis on capital-intensive businesses.
