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Trade deficit has become a worry as is the balance of foreign exchange. There was a template, provided by the success of iterations of performance linked incentive (PLI) schemes for mobile phones, ignored. It has now propelled India to become the second-largest mobile manufacturing country.
There is no ambiguity about what the government intends to implement, once the import restrictions on laptops, tablets and servers, go into effect from November 1 – the date deferred to provide for a transition period: Any and all computing devices for factors as well as servers or data-processing machines imported under the code ‘HSN 8741’ will be restricted. There will be a criterion for special import permissions, if need be.
The long-term vision behind the move is to boost domestic production of computing devices, which will also provide a fillip to employment generation. The laptop’s original device manufacturers, or ODMs, will play a critical role. But the volumes will be dictated by laptop brands themselves, including the likes of HP, Lenovo, Acer, Asus and MSI, to name some.
The numbers tell their own tale. In the financial year 2022-23, computer hardware and peripheral imports were to the tune of $14,138 million, while India’s exports to the ecosystem totalled around $554 million, according to the Department of Commerce.
It is the $13,584 million trade deficit, which the government wants to address through the move to restrict relevant imports.
A closer look at the data indicates of the total imports into India, $7,254.67 million originated in China, while Singapore clocked a distant second place with $1,958.42 million. As far as exports matter, units worth $112.69 million were shipped to the US, while Russia ($54.78 million) and the Netherlands ($50.18 million) were the other main markets.
“We have been manufacturing and deploying make-in-India servers and are also successful participants in the Govt PLI scheme. The import bill is ever-increasing and if not tackled it can become larger than oil imports,” Sanjay Lodha, chairman of Netweb Technologies, an Indian manufacturer of high-performance computing systems for enterprises, said.
Providing a foundation, again?
This is very much a follow-up of the second phase of the PLI scheme, for IT hardware.
That was announced in May, with an outlay of ₹17,000 crore over a period of six years. According to government estimates, the scheme is expected to add production worth ₹3.35 lakh crore, draw in additional investments worth ₹2,430 crore, and lead to 75,000 new jobs over the six-year period.
Applications for this PLI scheme can be submitted until the end of August, which is when the final list of participants and subsidy specifics will become clear.
“The policy announcement is designed to boost Make in India, and especially, the PLI Scheme 2.0 for IT Hardware, which aims to strengthen the IT hardware manufacturing ecosystem within the country,” said Prabhu Ram who heads the Industry Intelligence Group at CyberMedia Research.
The outlay for the second phase is double that of the first edition announced in 2021. Besides simplifying investment requirements, the doubling of the outlay is something the government hopes will attract global PC and computing systems brands.
“We believe the government’s decision to curb laptop, tablet, and computer imports is progressive and has the potential to boost indigenous electronics manufacturing in the country and also help in achieving Make in India vision,” said A. Gururaj, managing director at electronics manufacturing giant Optiemus Electronics Ltd.
Can smartphone manufacturing provide the template?
If we look closely, there are two templates to work with. First, the boost for TV manufacturing in the country, after a similar import ban was put in place in 2020. Localised manufacturing has seen an upwards trajectory since. In Q3 2022, as many as five million televisions were manufactured in India, an increase of 33% quarter-on-quarter with 100% of exported televisions manufactured locally, according to research from Counterpoint.
Second, the mobile phone manufacturing-focussed initiatives, which pegs India as the second largest phone maker in the world now. China still leads. According to research by Counterpoint, two billion phones have been assembled locally between 2014 and 2022, a period that saw multiple initiatives to boost localised manufacturing.
All major phone brands now manufacture in India. Chinese company Xiaomi’s India president Muralikrishnan B confirmed to HT that 100% of all phones they sell in India are manufactured here. The same is true for their smart TV line-up, which is subdivided into the Mi TV and Redmi TV portfolios.
Industry response has been positive to the curbs on computing device imports.
“We currently hold the PLI for IT hardware and are manufacturing laptops for notable brands. With this move, we expect further expansion of our capacity to manufacture these devices,” Gururaj added. Some of Optiemus Electronics’ manufacturing focus areas include smartphones, IT hardware including laptops and tablets as well as smart devices.
“The focus now is on the potential benefits such support can bring to research and development (R&D) and the manufacturing of electronics products in the country. This highly encourages building the whole manufacturing ecosystem in the country,” says Arjun Bajaj, director of Videotex, another original device manufacturer, with a strong presence in the television manufacturing space.
But global brands have other manufacturing bases too, which means the entire volume of manufacturing exiting China may not end up in India.
Apple, for instance, has invested extensively with its manufacturing partners, to make devices such as the iPhone line-up in India. It is rumoured that production of certain models of the upcoming iPhone 15 series, expected to be announced in September, has already commenced in India. But the company is looking outside India to manufacture computing devices.
Earlier, Apple announced a decision to start manufacturing MacBooks with Foxconn, BOE and Quanta in Vietnam this year, as part of the momentum to reduce reliance on laptop manufacturing in China. Apple places orders for manufacturing as many as 24 million MacBooks every year, many of which will now be made outside China.
Is this a case of uncomfortable timing?
While the policy is clear about its intentions to boost local manufacturing of computing devices in the country and reduce the reliance on China for manufacturing, the timing may be uncomfortable: In particular, ahead of the festive season sales, which laptop companies were hoping would bring some relief.
India’s PC market has been in a steady decline, after the highs seen during the pandemic, spurred by remote workplaces. According to research firm IDC, Q2 2023 represented a fourth successive quarter of declining computing device shipments – 3.2 million units were shipped in the period, representing a 15.3% reduction, year on year.
“The PC market has been sluggish over the last few quarters as enterprises and SMEs have been delaying their PC procurement. However, with import restrictions expected to kick in from November, we expect vendors to push channel inventory in both the consumer and commercial segments. SMEs and enterprises might also fast track their PC procurement anticipating a price increase from November,” points out Navkendar Singh, associate vice president of Devices Research at IDC India, South Asia & ANZ.
It is a similar story for tablets as well. The latest data by CyberMedia Research points India’s tablet shipments declined 22% year-on-year in Q2 2023.
With imports no longer an avenue and having to shift all manufacturing to India, PC, laptop and tablet makers will have to ship separate components inward. That will cause some concern, at least initially, about volumes and pricing.
“In the immediate aftermath of the announcement, the impact on consumers is uncertain, with potential issues like price fluctuations and reduced product availability as the market adjusts and adapts to the new policy,” CyberMedia Research’s Ram said, raising critical points about uncertainties in the backdrop of the decision.
“This move will definitely hurt consumers due to supply issues and even lead to a rise in prices for a short duration of time,” says Yogesh Agrawal, CEO and co-founder of Consistent Infosystems, an Indian technology manufacturing company.
They manufacture IT components including motherboards and SSDs for computing devices, and they hope the government will now focus on providing adequate infrastructure, lowering export tariffs and training manpower to enhance manufacturing competitiveness in the country.
In conclusion, initiatives to boost mobile phone manufacturing and restrictions on TV imports have set successful precedents to follow but the timing of restricting computing device imports gets complicated by falling shipments and the fear of losing pricing competitiveness.
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