Smartphone manufacturing still a pipe-dream under Modi's India
If there was one relentlessly trumpeted goal in the last few years -- make that an eventuality, considering it was a foregone conclusion in the minds of many -- it was that of an India that had finally engineered itself into a glittering hub of manufacturing under the stewardship of the government of Indian Prime Minister Narendra Modi.
Modi's Make in India campaign was thus launched to tremendous fanfare. And what better emblem of this promise than to become a global force in the one thing that Indians have begun to consume more than anyone else in the world, as if they were Tic Tacs: Smartphones.
Even as recently as early this year, the news wires were clogged with back-and-forths between Apple and the government about seeking certain exemptions to relocate -- or at least splinter off in some fashion -- the company's handset manufacturing from China to India. Having a notoriously picky company agree to make its iconic phones in India would have been a real victory.
Meanwhile, uber contract manufacturer Foxconn had announced that it too would jumpstart a manufacturing facility in the state of Maharashtra in India. Many Chinese phone makers -- India is now dominated by them, as stalwarts like Samsung and Micromax have been pummeled and ceded ground -- followed suit and declared that they too would be starting manufacturing operations in the country.
So far so good. Except that according to a latest report by Reuters, all of this has turned out to be largely hot air. Phones are still only assembled in the country, and that too in an attempt to evade the hefty customs duty on imported handsets. The sad truth is that only 5 percent of the inherent value of a phone is made in India and restricted to lowly items such as headphones and chargers rather than high-value chipsets and cameras.
This is not exactly the kind of news that Modi or his supporters would relish, and it has been a pretty lousy year for him. While he can't be blamed for some of India's ills such as its endemic corruption, he has stumbled badly lately, as this Economist article amongst a wave of others has suggested.
Leave aside the very serious incidents of communalism and social unrest that Modi and his party, the BJP, has done little to stifle or condemn -- such as several lynchings of Muslims for allegedly eating beef -- it is in his self-professed area of expertise in the economic and business realm that he has also been found severely wanting.
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Modi's de-monetization program that was devised to target corruption is now considered a failure of epic proportions. Not only has 99 percent of "Black Money" -- illegal funds that have evaded taxes -- insinuated itself back into circulation, but what many are calling a deeply flawed idea has now seriously hampered an economy that was struggling to get going.
Therefore, this news about smartphone manufacturing becoming a non-starter has come at a very inappropriate time. Indeed, many of the problems that have stymied its success are problems that Modi inherited: Thorny labour problems that make manufacturing a headache; monumental tax disputes such as the one that shut down a jewel in the Indian manufacturing crown such as the Nokia plant in Tamil Nadu; and poor infrastructure such as anemic power that dogs facilities across the country thanks to bankrupt state electricity boards.
The Modi government could have addressed these and forged new ground especially in areas that India desperately needed to improve. Ensuring that budding operations like Foxconn have access to top-notch engineering talent is one. India pumps out millions of college graduates every year, most of whom have bleak prospects for meaningful jobs. Modi's government has stumbled in sparking any kind of manufacturing that can absorb them, and a National Skill Development program created by him has also faltered badly.
It is increasingly turning out that Modi's government may not be that different from its predecessor Congress government. That administration too had lofty ambitions under its National Electronics Policy that involved what now in hindsight seem to be deluded aspirations such as to build a semi-conductor fab and nurture a Venture Capital fund for startups.
That government was massively and blatantly corrupt. Modi's track record for honesty and his reputation for being both a champion of technology and a doer was what India craved. The country thought that here finally was someone who could build an eco-system for high-end, technology manufacturing along the lines of the East Asian Tiger economies that thrived under government edicts in the eighties.
It is not that India doesn't have the brains to accomplish a successful manufacturing future. Take a look at some of the most successful Fabless companies in the world. Almost all have all set-up shop in India while home-grown stars have also thrived. Its many engineering colleges continue to churn out the next generation of Satya Nadellas (Microsoft's CEO) and Sundar Pichais (Google's CEO). Most of the top industrial and tech companies in the world such as GE and Cisco have their R&D centres in the country. But technology employees, which have so far been India's forte, are now ironically turning out to be its Achilles' heel.
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For one, automation is coming, and fast, and it promises to upend India's tech workforce. Almost 30 percent of its software staffers will be out of jobs in five years according to estimates. If that's not bad enough, the head of IT Services firm CapGemini said that almost 65 percent of current tech employees in India are not capable of being re-skilled. On top of all of that, you have disruptive forces like the cloud that is laying waste to growth prospects of Indian tech services firms. The country will have at least 100 million youth in the workforce in 10 years that it absolutely must find employment for or risk social upheaval and anarchy.
Smartphones could have been the cornerstone of this new thrust in manufacturing and employment that announced the promise of a new India, especially in light of China's labour costs continuing to rise. Modi's government still maintains that the country will begin churning out these much talked about higher-end components or smartphones by no later than 2020.
Yet with communalism on the rise, joblessness increasing especially amongst youth, manufacturing a non-starter, basic economic growth faltering badly, and even supposedly hot industries like e-commerce posting bleak results, it is going to take a lot more than grandiose announcements like Make in India to turbo-charge a manufacturing sector that should have been firing on at least a few cylinders by now.
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