Economies worldwide were devastated due to the pandemic. However, India gained an attractive investment from some of the biggest tech and electronic companies. More than 15 companies invested almost US$ 20 billion in India between April and July 2020. Some of the investors were Google, Walmart, Facebook, Apple and Qualcomm. The international monetary fund predicted that there will be a negative growth rate of -4.9% for the world economy in 2020. It also projected a sharp contraction by 4.5 for the Indian economy. Despite this prediction, these investments were made.
So why are these companies investing in India?
With the outbreak of trade war between the U.S and China along with disruptions in the supply chain, many electronic manufacturing companies are relocating their facilities. For instance, a contract manufacturer for Apple, Foxconn is shifting six production lines from China to India with a target to export around US$ 5 billion of Iphones from India. It is simultaneously catering to the Indian market. The apple vendors want to expand their production beyond Iphones and are planning to manufacture Ipads, Macbooks and other products in the upcoming years. Similarly, manufacturers like Wistron, Pegatron and Samsung are also thinking of expanding their manufacturing facilities in India.
The government simplified taxation and labour regulations which in turn encouraged infrastructure development. This further made it significantly easier for foreign companies to invest in India. It has also introduced the so-called Phased Manufacturing Programme, which is a step by step plan to incentivize phone makers to bring their manufacturing to India.
The future for electronics manufacturing in India
India is already the second-largest mobile phone manufacturer in the world. It is yet to attract more electronic manufacturing companies to create an ecosystem. The Indian government has recently announced a production linked incentive scheme. The government has already received 22 applications from foreign firms ranging from assemblers to electronic component producers.
As per the government, companies will produce mobile phones and components worth US$ 153 billion during the upcoming five-year duration. Moreover, these companies agreed to offer direct and indirect employment opportunities to over 1.2 million people in India. Despite being the second-largest manufacturer of mobile phones, only assembly is done in India while the other major electronic parts are imported from different countries. India also lacks a proper infrastructure for supply chain networks and other facilities which countries like China provide better. The PLI scheme from the government is a good start.
India is transforming into a digital economy
The internet penetration rate is expected to increase exponentially. Naturally, Investors are favouring India given its vast population and market size. In terms of the population growth of young adults, India will surpass China in the upcoming years. Mainly, this age group has the highest growth in the number of internet users. There are currently over 700 million internet users and nearly half a billion people are expected to join in the coming years.
Case study – Reliance Jio
This is an opportunity which no nation wants to lose. The U.S tech giants are competing and trying to grab their share of this massive market before others. Tech giants like Google and Facebook have invested in Reliance Jio, an Indian telecom company. It gained nearly 400 million subscribers with recent influence in e-commerce digital payments and streaming services. Jio appears to be looking to turn the company into an all-encompassing Indian ecosystem. Moreover, Jio is the only telecom company in India that has developed a complete end-to-end 5g solution.
Qualcomm has recently invested US$ 97.1 million in Jio, helping it roll out the advanced 5g infrastructure and services for Indian customers. Similarly, Google has invested US$ 4.5 billion in Jio, targeting 300 million users in India who are using basic feature phones. Google is working with Jio to create a custom Android version tailored for entry-level devices as well. Facebook‘s US$ 5.7 billion investment in Jio is likely to create a platform for online grocery deliveries through WhatsApp and Geomart.
Apart from this, silicon valley has been shut out by China for years. Several giants like Google, Twitter and Facebook are banned in China. For this reason, many companies have lost the biggest market in the globe. India has become their next target country. India needs to make changes in its existing political and business reforms to attract foreign manufacturing companies.