FORMER RBI Governor Raghuram Rajan’s recent utterances on the PLI scheme and iPhone manufacturing in India are so out of sync that one wonders if he is the same man who has otherwise been sensible and sanguine.
Rajan wrote a paper sometime back on the productivity-linked incentive (PLI) scheme of the Government in the electronics sector and followed it up more recently with a long interview with Karan Thapar on ‘The Wire’ where he said, ‘‘It turns out that if they assemble the stuff in India. And in fact, that’s what they’re doing – they’re basically bringing all the components to India and then with the old screwdriver technology, putting it together in large factories and saying we’re manufacturing in India.’’
So let me educate Rajan on the many things that Apple is doing in India. Firstly, contract manufacturing – that now sees newly releasing iPhones being manufactured in this country. It is at 10 pc and likely to go up to 50 pc of all iPhones worldwide by the end of the decade. In 2016, Apple opened its first technology development centre outside the US, in Hyderabad and now has over 10,000 engineers who work to upgrade and enhance the crown jewels of the Apple world. Weeks back, India Briefing quoting Bloomberg said: ‘‘The Indian government has given its initial clearance to 14 of 17 Chinese suppliers submitted by Apple for operating in India. The companies will now need to find a joint venture (JV) partner in India and then seek full approval for setting up(their business).’’ What it means is that the other parts of the ecosystem are now falling into place.
A gradual process
Outlook had a long piece on the subject quoting multiple sources: “In response to the question on PLI impact, Counter Point Research said, “We have to understand that it’s supposed to be a gradual process. Even China did not establish itself as a manufacturing hub in one day. The PLI scheme is a step in the right direction. First, the assembly has to start and attract big players following which localization of key components can pick up pace.”
“A PWC India report noted that Indian firms have made significant progress in some parts of the mobile phone value chain. The report stated that 16 per cent value addition happens in display, 13 per cent in sub-components, 12 per cent in IP licences, 10 per cent in processor, 8 per cent in casing, 6 per cent in memory, 5 per cent in storage, and 2 per cent in assembly. India’s presence has grown from just 2 per cent (assembly) value addition in 2014 to about 15 per cent (assembly + sub-components) in 2022.” This will inevitably grow.
Auto sector example
Let me end by giving Raghuram Rajan one other example of the exponential growth of sectors once the matrix is in place. Maruti arrived in India in 1980- 81, the first car rolled off the factory in Gurugram in 1982. Then just two automobile companies—Hindustan Motors and Premier Automobiles – rolled off around 25,000 vehicles a year.
Contrast that with what Wikipedia says about the situation four decades later: “The automotive industry in India is the third-largest by production in the world as per 2023 statistics. As of 2023, India is the 3rd largest automobile market in the world in terms of sales. In 2022, India became the fourth largest country in the world by the valuation of its automotive industry.” And, mind you, when Suzuki first brought in Maruti it was a CKD form. Slowly but surely, the manufacturing roots gained strength and today India is the automotive component leader for the world.
Similarly, India has been manufacturing a wide variety of parts for both Boeing and Airbus. The Sikorsky helicopter cabin that is used in the VVIP fleet of the US President is made at the Tata-Lockheed JV in Hyderabad. Over the years, because of the presence of Hindustan Aeronautics Ltd in Bengaluru, the region developed as an aerospace hub. It is a similar situation now in Hyderabad where the Tatas have major facilities. With the Airbus C 295 to be made in India, it is a given that the manufacturing base for aircraft will increase exponentially, around the region and across states.
But one thing that professors like Raghuram Rajan ought to remember is that be it Boeing, Airbus, Apple, Samsung or Ford, it sources worldwide and assembles worldwide. That’s the nature of the business. India will be centerstage in this process – in not just one but multiple industries.