India seeks to be a major producer of electronic goods by 2020 under its Vision 2020 plan. It is trying to shift gears from an outsourcing nation into a producing one and is consistently moving up the value chain.
The Make in India program, launched in September 2014, has already attracted `110,000 crore (USD 17 billion) worth of proposals for manufacturing electronics in the country within the first year.
The modified special incentive package scheme (M-SIPS) provides financial support to companies looking to manufacture at one of the 16 electronic manufacturing clusters. Micromax, Lava, Celkon, Samsung, and Sony have responded. Each has either invested directly into captive mobile phone manufacturing factories or partnered with EMS/ODMs companies to set up assembly factories in India. Foxconn has set up factories in Chennai, Tamil Nadu, and Sricity, Andhra Pradesh, where it is assembling phones for Chinese companies like Xiaomi, Gionee, and Oppo and is likely to do so for Apple as well. Sony and Celkon plan to manufacture televisions too. Other electronics manufacturers may follow.
Despite the initial successes, challenges as intrusive market regulations, poor infrastructure, inflexible labor market practices, and stiff land acquisition rules remain. Take the smart cities initiative. The government’s inability to pass legislation easing regulations around the acquisition of land is likely to undermine this program.
IHS Country Risk Analysis ranks India’s corruption and regulatory burden as very high. With not much improvement in the earnings picture, from the financial market’s point of view, there are a number of negatives too. The biggest concern is global investors, who reducing their exposure to emerging markets, may now start to be concerned that the Indian story is not playing as well as they expected it to be. There may be more capital outflow, and in an environment where exports are slowing, it creates more risks. This year, there could also be a lot of volatility in the currency markets.
Will India be able to break from the shackles of mediocrity and hook up with Asian giants, China, South Korea, and Japan?