Nokia’s deserted factory in southern Indian state of Tamil Nadu was once a symbol of the country’s struggle to boost electronics manufacturing.
In 2014, Nokia shut down production at Sriperumbudur – its largest factory in the world with more than 8,000 employees – after a tax dispute with New Delhi and got carried away in Vietnam.
Six years later, the abandoned factory was taken over by Salcomp, the world’s largest manufacturer of phone chargers. Salcomp is rapidly expanding its operations in India, along with other Apple manufacturers such as Wistron, Foxconn and Pegatron. All are looking to tap the Indian market and diversify supply chains from China – and reap the benefits of the manufacturing incentives New Delhi offers.
“It was tough times when Nokia left, everyone moved,” said Sasikumar Gendham, director of Salcomp India, during a factory tour where workers, wearing face masks and sitting in cabins with plastic barriers to protect themselves from coronavirus, were assembling chargers. for Apple, Xiaomi, Oppo and Samsung.
“But now they [the manufacturers] came back. India has a lot to offer. ”
Salcomp produces more than 8 million chargers per month in India, where it employs over 7,500 people. He plans to hire thousands more over the next two years as the abandoned Special Economic Zone comes to life.
“We are now trying to diversify into many different segments as well,” Gendham said, highlighting a push towards green power components and mobile phone accessories.
Sixteen electronics manufacturers also announced plans to invest in India under New Delhi’s ambitious Production Incentive Program (PLI) to boost manufacturing. Foxconn is moving next door to Salcomp and last week Pegatron announced a $ 150 million investment for its new unit in India at a location to be announced soon.
The $ 6 billion over five years scheme provides a short term subsidy for products made in India if the companies meet the targets set by the government. The program is designed to make the cost of manufacturing more competitive against its Chinese and Vietnamese rivals, as well as to boost exports, although experts warn that this may not be sustainable.
Indian economy contracted 7.5 percent year-on-year in the quarter ending in September, after falling a record 24% in the previous quarter. Analysts say manufacturing, a sector showing a stronger rebound than others, is critical to the country’s economic recovery.
India has emerged this year as a net exporter of mostly low-end phones, with its share of global production volume reaching 20 percent, according to Credit Suisse. But the added value in the country is low and relies on China and other countries for critical hardware components, such as circuits and batteries.
Last month, Narendra Modi’s government extended the program to other sectors. Nirmala Sitharaman, Minister of Finance, said it would help the country move closer to “Aatma Nirbhar Bharat– Autonomous India – as the government turns against free trade agreements.
“In the name of openness, we have allowed subsidized products and unfair production advantages from abroad to prevail. And during all this time, it has been justified by the mantra of an open and globalized economy ”. said S Jaishankar, Indian Minister for External Affairs.
But experts warn the LIPs are the latest manifestation of Mr Modi’s inward-looking economic policies that threaten the country’s recovery from the coronavirus pandemic.
Arvind Subramanian, former chief economic adviser to India, and economist Shoumitro Chatterjee of Pennsylvania State University, argued in a recent paper that New Delhi’s emphasis on self-sufficiency and its domestic market wasted an opportunity to gain more export market share.
They say policymakers are relying on domestic demand, withdrawing from free trade agreements, including the Comprehensive Regional Economic Partnership, and increasing trade restrictions. In 2018 alone, there were nearly 2,500 fare increases, according to their research.
“These LIPs are inadequate and constitute a form of domestic politics,” Mr. Subramanian said. “How can you liberalize if you’ve basically decided to fall back on yourself? These are completely contradictory strategies. “
Priyanka Kishore, Indian economist at Oxford Economics in Singapore, questioned the sustainability of the program at a time when the balance sheets of central and state governments were in question.
“You cannot continue with the PLI program forever, there is a fiscal constraint,” Ms. Kishore said. “It does not take into account the concerns of competitiveness, which require a much more structural solution than financial incentives.
“I don’t know if this leads to a very big increase in the attractiveness of India compared to Vietnam, Thailand or Malaysia,” she said, adding that the changing regulatory environment of aggressive country and tax authorities remained a big concern for investors.
But Salcomp’s Gendham hopes the new policies will lay the groundwork for a new chapter for electronics manufacturing in India. It is certain that the authorities have no appetite for another Nokia-style tax debacle.
“It has tarnished India’s investor-friendly image, but things have changed,” Gendham said. “The ease of doing business is always on people’s minds.”-Financial Times