Indian government has been stepping up efforts to boost domestic production!

India’s manufacturing capabilities received a massive boost!

The government approved a PLI scheme with $6.65 bn. worth of incentives to 16 smartphone companies to boost manufacturing in India. But is only offering incentives enough?

India’s manufacturing sector got a big boost last evening!

The government, under the Production Linked Investment (PLI) scheme, approved $6.65 bn. worth of incentives to 16 companies that included Samsung and a few contracted manufacturers of Apple.

Apple’s contractors and Samsung are amongst the 16 firms to receive incentives!

Under the scheme, the government will give 4–6% incentives to them on incremental sales and exports of manufactured goods — including mobile phones and its components for five years, provided the companies invest in local manufacturing.

This move by the government says a few things:

It significantly boosts India’s domestic manufacturing and exporting capacities, in addition to generating more local jobs. For Indian firms, it means the motivation to expand production and build world-class facilities!

The list includes Indian firms like Lava, Micromax, etc., Apple contractors like Foxconn and Pegatron, but does not include Chinese smartphone makers like Oppo, Vivo, OnePlus, etc. The government, with incentives to Korean and American companies, signals its Anti-China stand!

At present, Chinese companies command 80% of the smartphone market in India, but globally, Apple and Samsung account for 60% of sales revenues. With Jio also touted to start producing smartphones soon, over time, we will see the Chinese smartphone share dwindle.

With foreign firms, it increases trust, thus paving the way to attract substantial investment opportunities, especially in the IT sector. Tesla may also be coming soon!

Ultimately, it helps PM Modi’s clarion Call of a self-reliant India.

While it does win the trust of foreign investors, the government needs to do a lot more to attract more investment to the manufacturing sector:

Reduction in duties and taxes

The reason Harley Davidson quit India was because of low profitability. A tax liability of ~80% being passed on to bikers meant cot of bikes nearly doubling! Reducing corporate taxes and import duties may help signal the government’s intentions to show the world India means business!

Ensuring religious and societal harmony

Stories of mob lynching, riots across India raise concerns about religious harmony and stability in India, to potential investors!

Government Stability

Karnataka, for example, has a history of political instability. Infact, along with Madhya Pradesh, governments have already changed hands between elections! With different governments come different ideologies, which means change in policies, compliance, thus delaying approvals. This does dampen the spirit of investors looking for stability!

Better coordination between the state and central government(s)

Regional interests have, in a way, divided India over the past few years. Coordination between states and central government seemed to be getting better, until the recent GST compensation fiasco.

If India has to improve its lure to the outside world, this is a major obstacle that could stop investors from trusting the ecosystem!

Overhaul the administrative setup with more specialists

At the moment, the IAS cadets are more generalists than specialists. Inclusion of specialists at the top could help fast track decision making processes and thus, speeding up approvals!

Decentralize power

Currently, power is concentrated at the hands of a few at the top. If power can be decentralized, it could lead to faster approval of applications!

What do you think the government can do more, beyond only incentives, to win the trust of manufacturing entities?

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