Some suggested steps include creating world-class, export-oriented industrial hubs (where India is a laggard), ringing in favourable tax treaties with the country’s top trading partners, bolstering logistics infrastructure (including connectivity with ports), encouraging sector-specific skill development, targeting high-volume local production of capital goods and investing in smart manufacturing facilities.
These enablers, they say, are critical to boost India’s value proposition and getting the biggest global players to invest top dollars in mega manufacturing capacities in critical sectors such as automobiles, renewable energy, telecoms equipment, electronics and batteries – more so in a changing geopolitical scenario when global companies are increasingly looking to cut their dependence on China and eying India as an alternate manufacturing hub.
The recent budget has increased the import duty on printed circuit board assembly by 5 percentage points, which is expected to spur the local production of this key input for telecom network equipment. It also exempted machines used in manufacturing solar modules and cells from the earlier 7.5% import duty. But industry experts call these “baby steps”, and underline the need for radical policy reform to make India a force to reckon with on the world manufacturing stage in key sectors such as telecoms, automobiles or renewable energy.
“The importance of the manufacturing sector for India is very high due to the multiplier effect, in that, for every job we create in manufacturing, we can look forward to creating another 3.5-4.0 jobs in the services ecosystem,” said Rajeev Singh, partner, consumer industry leader, Deloitte Asia Pacific.
The PLI schemes for multiple sectors have propelled India’s local manufacturing ambitions, but industry executives and consultants believe the government needs to do much more. The biggest success stories on the PLI front have been in local manufacturing of telecoms network equipment and electronics (primarily smartphones), which resulted in genuine import substitution. Latest communications ministry data show telecom gear sales by PLI beneficiary companies topped the ₹50,000-crore mark in fiscal 2024 – a 370% jump over the base year of FY20 – which has reduced India’s import dependence on these devices and resulted in an import substitution of 60%. The PLI scheme for telecom equipment has also created 17,800 direct jobs in under three years.The PLI scheme for electronics manufacturing resulted in mobile phone exports zooming to ₹1,28,982 crore in FY24 from just ₹1,556 crore in FY15, show communications ministry data. During the same period, India’s mobile phone imports plunged over 84% from ₹48,609 crore to ₹ 7,665 crore. In fact, over the past five years, the trade deficit in telecoms (clubbing telecom gear and mobiles) has narrowed from ₹68,000 crore to just ₹4,000 crore.”Telecom and electronics are the shining stars of manufacturing so far, in that, they have done better on the PLI front. Both sectors have also seen bigger sums of incentive disbursals from the government,” said Deloitte’s Singh, adding that “import substitution has definitely happened” in the telecom/smartphones manufacturing space. He, though, feels if India is to replicate this success in autos and become a genuine export hub for automobiles, the auto PLI scheme won’t be enough, and the government would need to hasten policy measures to develop large industrial hubs, emulating countries like China and Thailand.
“On industrial hubs, we are a little behind Thailand, which is today home to large export-oriented manufacturing hubs where top global auto OEMs from Ford, VW, Nissan, Honda and Toyota to Bridgestone have set up large manufacturing capacities, further encouraged by the presence of a large vendor ecosystem,” said Singh.
To be sure, automobile and auto component makers in India have invested ₹13,000 crore in the past year to manufacture green vehicles and related parts under the PLI scheme. Eight automakers and parts suppliers – Mahindra & Mahindra, Tata Motors, Bajaj Auto, Ola Electric, Toyota Kirloskar Auto Parts, TVS Motor Co, Sona BLW Precision Forgings and Delphi TVS Technologies – have invested and got approvals for 52 products. The government expects to attract targeted investments of ₹42,500 crore in the next two-three years, ahead of the initial five-year timeline. In the latest budget, the finance ministry allocated ₹3,500 crore to incentivise auto and parts makers in the current fiscal year. “Lots of investments are happening in the automotive space in developing knowhow for advanced technologies. The industry does import from China, but as our capabilities go up over time, our dependence will start coming down,” said Nirmal Minda, managing director of automobile component maker Minda Industries.
It is estimated that in a five-year span, the auto PLI scheme will lead to an incremental production of over ₹2.3 lakh-crore, creating more than 750,000 jobs.
India’s policies to boost local manufacturing of renewable energy gear, especially solar energy equipment, too has gained traction. Solar module manufacturing capacity is now upwards of 50 GW from less than 10 GW in FY21. As per the industry and government estimates, module manufacturing is likely to hit 100 GW in two years. So far as cell manufacturing goes, the current 6 GW capacity is estimated to grow to 30 GW by the end of FY25. Industry executives, though, have called for more policy action to boost local production of wafers and ingots in the solar supply chain.
Deloitte’s Singh feels strong import substitution in renewables will take time as the sector sees lots of imports at the back end, primarily of capital goods required for setting up renewable energy facilities.
Kunal Vora, head of India equity research at BNP Paribas, however, expects the customs-duty waiver (in the recent budget) on critical minerals such as lithium, cobalt and nickel, which are components used in battery cell manufacturing, will give the latter a boost.
This article is published in partnership with Deloitte