The government’s decision to confer Padma Bhushan on Young Liu, the chief executive officer of Foxconn, is an acknowledgment of the Taiwan-based company’s efforts to boost India’s Make in India initiative. And, Foxconn’s continued commitment to India is also testament to the government’s efforts towards making India a manufacturing hub.
The contribution of the manufacturing sector to the GDP has been stagnant at 15-17% for decades. No amounts of tax rebates or other incentives have been able to increase the manufacturing pie. The Narendra Modi government’s latest attempt at production-linked incentives (PLI) to manufacturing firms, however, seems to be working. The boost to mobile manufacturing in the country in the past couple of years is a direct result of the PLI scheme. Smartphone exports reached $11 billion in 2022-23 from almost nothing in the previous year. As of November 2023, smartphone exports crossed $9 billion with a few months left for 2023-24 to close the books.
Clearly, the PLI scheme has taken off well for smartphone manufacturing, even if people may question the level of value addition Indian mobile manufacturers are doing in the country. There are other areas like telecom instruments —where exports rose from $885 million in 2018-19 to $13 billion in 2022-23—which have benefited from the PLI Scheme. However, the longer-term impact of the scheme on other sectors (14 so far) would only be evident in the next 2-3 years.
The government has also used other measures, such as quality control and tariff barriers, to boost local manufacturing. The toy sector has benefited from both these measures with exports surging from $96 million to $326 million in 2022-23. Defence sector manufacturing is also taking wings on the back of government policies such as local procurement and opening up of defence corridors. Defence sector exports jumped from Rs 700 crore in 2014-15 to Rs 16,000 crore in 2022-23. While there have been a few success stories of the current government’s efforts to boost the manufacturing ecosystem in the country, there is still a lot of ground left to cover.
Despite all the spirited efforts by the government, manufacturing’s value addition as a percentage of the GDP remains below the long-term average of 15-16%. As per the advance estimates for FY24, the manufacturing GVA as a percentage of nominal GDP is below 13%(12.8%). A few success stories should not make us lose sight of the target of increasing the share of manufacturing in GDP to 20% if not 25%.