India’s Push for Local Manufacturing: Balancing Chinese Dominance and Domestic Growth

Source: The post India’s push for local manufacturing: balancing Chinese dominance and domestic growth has been created, based on the article “With or without Chinese companies is the question” published in “The Hindu” on 9th August 2024

UPSC Syllabus Topic: GS Paper 2- Internation Relations- India and its Neighborhood.

Context: The article discusses India’s efforts to become a global manufacturing hub through the “Make in India” project and PLI scheme. It highlights Chinese smartphone companies’ dominance in India and challenges in reducing their influence while developing local manufacturing expertise.

For detailed information on Trade Relationship Between India and China read this article here

What is the government’s plan for transforming India into a manufacturing hub?

1. The government launched the ‘Make in India’ project in 2014, aiming to turn India into a global manufacturing hub.
2. The Production Linked Incentive (PLI) scheme was later introduced to attract both domestic and foreign investments.
3. The Bharatiya Janata Party’s 2024 election manifesto highlighted its focus on manufacturing across sectors.
4. In the Union Budget 2024-25, ₹6,125 crore was allocated to the PLI scheme for large-scale electronics manufacturing, an increase from ₹4,499.04 crore in the 2023-24 Budget.
5. Additionally, ₹1,148 crore was allocated to research and development in the electronics and IT sectors.

For detailed information on India Struggling to become a Global Manufacturing Hub read this article here

How have Chinese smartphone companies benefited from ‘Make in India’?

1. Chinese smartphone companies, such as those with a market share of over 50%, have been major beneficiaries of the ‘Make in India’ project.
2. They have effectively capitalized on India’s large Android smartphone user base, which held a 70% market share in 2023.
3. These companies have expanded their production with support from Indian governments, employed effective marketing strategies, and penetrated non-metropolitan regions.

How has India responded to Chinese dominance in the smartphone sector?

1. India has sought to ‘Indianise’ the operations of Chinese smartphone companies after the Galwan Valley incident in 2020.
2. This includes involving Indian equity partners, appointing Indian executives, and expanding exports from India.
3. Indian companies like Tata Electronics have also begun contract manufacturing smartphones, signaling increased local involvement.

What Challenges Remain?

1. Infrastructure Deficits: India lacks the necessary infrastructure to support large-scale manufacturing, such as uninterrupted power and water supply, which are critical for production continuity.
2. Supply Chain Limitations: The absence of a robust local supplier network and ancillary industries hampers the capability to manufacture all smartphone components domestically.
3. Technology Sharing Hesitance: Chinese companies are reluctant to share technology without clear agreements on their equity participation, affecting the development of local expertise.
4. Workforce Conditions: Better working and living conditions for the workforce are required to sustain manufacturing growth and attract skilled labor.

What Should be Done?

1. Increase Funding for Local R&D: Raise allocations beyond the 2024-25 budget increase to ₹1,148 crore to foster innovation in local electronics and IT industries, which saw a rise from ₹600 crore in the previous fiscal year.
2. Promote Indian Equity and Management: Encourage the induction of Indian stakeholders and executives into foreign companies operating in India to foster better local control and benefits.
3. Balance Chinese Investments with Local Growth: While the government seeks to limit Chinese involvement, the Economic Survey suggests promoting Chinese Foreign Direct Investment (FDI). New Delhi must balance developing home-grown industries with the need for continued Chinese investments to achieve its manufacturing goals.

Question for practice:

Discuss the challenges that India faces in reducing Chinese dominance in its smartphone manufacturing sector while enhancing local expertise.