For a developed country, the manufacturing sector is its talisman, its magical growth fountain. But despite decades of efforts, it is only now that India seems ready for the hustle.
Bearing testimony to this fact is none other than the tech conglomerate Apple, which last week announced the production and export of its two flagship models -- iPhone 16 Pro and iPhone 16 Pro Max -- in India.
The government sees this as a hint of triumph.
That's because Apple first began its iPhone manufacturing journey in India in 2017, starting with the iPhone SE, but all it did for the next several years was to assemble handsets for the domestic market. Last year, however, saw a dramatic shift with the government rolling the Production-Linked Incentives (PLI) dice, and abracadabra, one in every seventh iPhone in the world is now being Made in India!
According to market research firm Canalys, in 2022, Apple India produced nearly 15 million iPhones, which increased to 25 million in 2023, or about 12% of all phones produced. In the first half of 2024, it produced about 18 million and is projected to account for 23% of its total production volume by the end of 2025.
The rising volumes are literally worth their weight in gold, as they mark a significant turning point for India's trademark Make in India initiative. "Apple's latest iPhone 16 being produced and launched globally from Indian factories!" heartily beamed Ashwini Vaishnaw, Union minister for Communication & IT, on X.
Climbing the manufacturing ladder
With an outlay of Rs 1.97 lakh crore, PLI 2.0 attempts to make India a manufacturing powerhouse, reduce import dependence and create jobs. As Apple emerged as an anchor, it sparked intense hopes that India's manufacturing story will likely blaze bright and fast, at last.
Until now, the sector's contribution remained below potential, accounting for just about 17% to the nation's GDP, employing only 57.3 million, or 11% of the population, and exporting 2% of global goods. In FY23, it grew at a disappointing 4.7%.
Strengthening the sector is crucial to fulfil the aspirations of Asia's third largest economy, which wants to transition from a middle-income to a high-income economy. Though the economy is growing, its current run rate isn't translating to as many jobs as it should. Moreover, in the absence of high-value jobs, much of India's labour force is stuck in low-productivity, informal jobs.
But, some believe victory doesn't wait for a nation that's late. India missed the manufacturing bus long ago and despite several jump starts, the sector was getting nowhere fast. In fact, former RBI Governor Raghuram Rajan reasoned that India should continue to prioritize services over manufacturing to achieve sustainable growth and job creation.
"Both politically and economically, the manufacturing ladder is harder to climb," he observed at an event recently and argued that manufacturing was not the holy grail of India's economic success. That's because, India was no longer competing against high-cost labour in the US, but was facing intense competition from countries like China, Vietnam, Indonesia and Mexico.
But the government seems convinced and wants to transform India into a global manufacturing hub by enhancing employment creation in crucial sectors such as electronics, defence, mobile, and automobiles. The aim is to eventually increase the manufacturing sector's share to 25% of the GDP by 2047. To do so, India needs to create an ecosystem including component manufacturers, who not only create jobs, but also facilitate technology transfer, and in the process, integrate Indian MSMEs into global value chains.
Yes, doctor, Apple is indeed good!
This is where Apple's presence in India could make a difference. As they say, when big boys move, they bring small, ancillary players along with them and gradually, a components ecosystem along with hi-tech manufacturing capabilities will get firmed up.
Historically, Apple relied on China to produce all its high-end smartphones and the change of gears, shifting mass-production of iPhones to other countries like India, is seen as an effort to build resilience in its supply chains outside China amid souring ties between Beijing and Washington. In fact, Apple CEO Tim Cook even stressed on the need to make in India during Apple's Q2, 2024 earnings call. "In terms of the operational side or supply chain side, we are producing there (India), from a pragmatic point of view, you need to produce there to be competitive," he said.
It also comes at a time when companies are diversifying production away from China to India and Vietnam, thanks to geopolitical factors and the need for a 'China plus one' strategy to avoid supply chain disruptions witnessed during the pandemic years.
For instance, Apple's supply chain diversification took off during the Covid-19 pandemic when a Foxconn factory unexpectedly closed in China, affecting factory operations. Foxconn is Apple's largest contractor and produces more than two-thirds of Apple's iPhones, and any bump in its production pipeline will have an adverse effect on global sales.
That's when, perhaps sensing the opportunity, the Indian government pushed for PLI to attract global manufacturers.
In 2023, Foxconn invested $1.5 billion in Tamil Nadu, built a $600 million plant in Karnataka and another $500 million plant in Telangana. Incidentally, all three key vendors of Apple in India including Foxconn Hon Hai, Pegatron, and Wistron, (the latter two are now owned by the Tata Group), are all participants in the government's smartphone PLI scheme, which include revenue-based annual payouts for up to five years, besides other benefits. And the results are trickling in.
Of the five iPhone models (11, 12, 13, 14, and 15) produced in India last year, Foxconn exported 58% of its total production, while the rest was sold locally, while Pegatron and Wistron exported 80% and 96% respectively. Bulk of the exports were to the US, Europe, West Asia and others, and Apple emerged as the first company to cross the $5 billion export mark from India.
In FY24, Apple reportedly averaged $1 billion worth of iPhone production each month, up from $620 million in the previous fiscal. Exports from India too surged from $6.27 billon in FY23 to $12.1 billion in FY24. The Cupertino-based company's efforts to branch out its supply chain from China seem to be finally bearing fruit in India. Its market share improved to 6.4% in 2023, up from 4.6% in 2022. It's now targeting to take it to 8% in 2024. By 2025, Apple plans to shift 25% of its manufacturing to India. Currently, it's at 14%, up from 7% a year ago.
Suddenly, producers like Apple have discovered that India has several advantages -- unlimited talent pool, a growing domestic market, improving infrastructure and an appetite for structural economic reforms to help the industry grow. But it lags behind China in terms of skills, and regulatory and policy frameworks. Beijing, after all, has a long history of mass-producing high-quality electronic goods.
Although India is making strides in the production and export of smartphones, unlike China, it lacks presence in multiple aspects of production and manufacturing of all other electronics products. India needs to build multiple hubs housing component makers and vendors of various electronics goods in the long-run.
