Policies Pushed For Manufacturing In India In 2023, But Did It Make A Difference?

All of 2023 the narrative surrounding India’s manufacturing sector was that India was the next destination for global players after China. The media was rife with reports that companies were leaving for countries like India and Vietnam as China tried to get back on its feet after the pandemic shutdown. Apple’s India-made iPhone 14 only added to this narrative. 

While India was constantly positioned as a competitor for China, Louis-Vincent Gave Of Gavekal Research had told The Core earlier this year that India was only receiving China’s scraps. “Six years ago China was exporting cotton t-shirts and plastic toys. Today, out of nowhere China is the biggest car exporter, solar panel exporter, battery exporter in the world…so yes, factories are moving into Vietnam, into Indonesia, into India. But so far, this is like the crumbs off China's table,” Gave had said. 

In March, a parliamentary panel on commerce tabled in the Rajya Sabha had also said that India had not been able to take advantage of the China plus one strategy and that countries like Vietnam, Thailand, Cambodia, and Malaysia had benefited better from it. However, the government pushed to boost domestic manufacturing this year through its production-linked incentive (PLI) scheme. 

Eight sectors, including electronics, IT hardware, pharmaceuticals, telecom and networking, and more started manufacturing under the PLI scheme in June 2023. For sectors under the PLI scheme, gross foreign direct investment (FDI) inflows have seen growth, according to credit ratings agency ICRA Limited. Though the overall gross FDI equity inflow declined in the last couple of years, the gross FDI inflow for the PLI sectors increased and was higher than the 10-year average for most, the agency’s research showed. 

Electronics and pharmaceuticals were among the best-performing sectors in terms of exports this year, with the country actively trying to reduce dependence on imports in electronics and hardware and pushing for exports in pharmaceuticals. The government announced a restriction on laptop imports earlier this year causing a big splash and uproar. It was later rolled back. “Major factors that played a key role in better performance by the electronics and pharma sector are lower capex requirements and relatively less complex manufacturing process compared to sectors like high-efficiency solar PV modules, advanced chemistry cell (ACC) batteries, semiconductors etc.” ICRA Limited said in a report shared with The Core.

This has also been the year for renewables. Electric vehicles, and the entire ecosystem around them, have been in the spotlight, with adoption increasing. This year the centre also announced a policy for green hydrogen, leading to significant interest in the ecosystem. 

Here’s a look at some of the key sectors where the government tried to incentivise domestic production: 

The Restriction On Laptop Imports

IT hardware was among the key industries where the Indian government pushed for local manufacturing to reduce imports from China. An estimated $7 to $8 billion worth of hardware is imported to India annually. This year, there was an increase in imports of electronic goods. Between April and June this year, imports increased to $6.96 billion from $4.73 billion in the same period last year, which accounted for 4-7% of overall imports. Within this, personal computers including laptops had the highest share. 

In August this year, the government restricted the import of laptops, PCs and tablets and announced that it would impose a licensing permit for imports. This, however, led to an uproar from industry players who were concerned about not having enough time to set up manufacturing units in the country. The restriction was delayed for three months until the end of October and was rolled back completely later. 

Starting November 1, an ‘import management system’ was implemented, where IT hardware companies are required to register and disclose information regarding their imports, which countries they import from and so on, with the idea to check imports from China. 

Meanwhile, the government also approved a revised production-linked incentive (PLI) scheme for IT hardware with a budget outlay of Rs 17,000 crore, which was more than twice what it was when the original incentive program was introduced in 2021. In November, 27 companies including Acer, Asus, Dell, HP, and Lenovo were approved under the revamped PLI to manufacture tech hardware in India. However, Apple and Samsung, two of the biggest global players, decided to not apply for the scheme with sources citing India’s small market size as the reason for this. 

Semiconductor Manufacturing 

This is yet another sector where there was a push to curb reliance on China after the pandemic. The Indian semiconductor industry is expected to reach a market value of $63 billion by 2026, boosted by a surge in electronics consumption and demand for semiconductors in smartphones and wearables, automotive parts, and computers and data storage. 

Despite the Indian government pushing hard for a semiconductors and display manufacturing ecosystem, this year wasn’t the best for the sector. Under the India Semiconductor Mission, the government announced an outlay of Rs 76,000 crore to develop an indigenous ecosystem in 2021. Last year, the government opened applications from companies to set up plants under the mission. 

It received three applications to set up semiconductor plants in the country — from a Vedanta-Foxconn joint venture, international consortium ISMC which included Israel-based Tower Semiconductor, and Singapore-based IGSS Ventures. All three ran into hurdles and the plans didn’t materialise so the government opened the applications once again in June 2023, and will keep them open until December 2024.

The Hindu reported last month that allegedly 80% of the funds allocated for the semiconductor manufacturing scheme remained unused.

In June this year, US-based Micron Technology signed a pact with the Gujarat government to set up a facility in the state and commenced construction of the first phase in September. The $2.75 billion semiconductor testing and packaging plant is being constructed in Sanad, Gujarat. Micron is investing $825 million in the plant in two phases, while the rest will come from the state and central government.

For Electric Vehicles

In a bid to accelerate the rate of electric vehicle (EV) adoption and incentivise buyers, the government launched the Faster Adoption and Manufacturing of Electric Vehicles (FAME-II)  scheme in 2019 for three years. This was extended for another two years up to 31 March 2024. 

The scheme, with a total budget outlay of Rs 10,000 crore offered cost incentives and subsidised manufacturing costs for EV manufacturing companies making in India. As of November 15, 2023, nearly 5,094 crores worth of claims have been submitted by various OEMs, and the government has disbursed Rs 3,815 crore so far. 

It was a tumultuous year for EVs, with the government slashing FAME-II subsidies for electric two-wheelers in June this year, due to EV two-wheeler sales already close to meeting targets, as well as because of some companies misusing the funds. This led to an average price hike of 21% and a drop in sales of over 55%. 

Given fears that the funds could run out before the March 2024 deadline, the government in December sanctioned Rs 1,500 crore more for the scheme. 

Most notably this year, the government is also looking to boost domestic manufacturing of EV charger parts. The Ministry of Heavy Industries released a new phased manufacturing program in November, outlining a list of charger components and a timeline for their switch to being domestically manufactured. According to the program, EV charger manufacturers must achieve a minimum 50% domestic value addition by December 1, 2024, to be eligible for the FAME-II scheme. 

While overall EV sales have seen a 50% growth year-on-year (until November 2023), driven mainly by two- and three-wheelers, the possible termination of the FAME-II scheme in 2024 could signal a slowdown. 

Pharmaceuticals 

India’s exports of drugs and pharmaceuticals between April and October this year rose by 8% to $15.77 billion. Arunish Chawla, Secretary of Pharmaceuticals, during the 96th Annual Convention of the Federation of Indian Chambers of Commerce & Industry (FICCI) highlighted how the country was transitioning to an export-oriented pharma sector, being the third largest in the world. 

Local manufacturing of bulk drugs or active pharmaceutical ingredients (APIs), which is still import-dependent, also saw a boost, thanks to the production-linked incentive (PLI) scheme. Data from the Pharmaceutical Exports Promotion Council (Pharmexcil) showed that the growth rate of API imports from China has slowed down. APIs are key raw materials used to manufacture other drugs. 

The PLI scheme for bulk drugs was launched in 2021 with an outlay of Rs 6,940 crore with incentives being offered at 20% for the first year, 15% for the fifth year, and 5% for the sixth year. This year, Chawla said at the FICCI conference, production of 33 bulk drugs out of the selected 40 has already started. 

Production of 136 products under the PLI for medical devices has also started. The country earlier relied on imports for 90% of its needs. 

In February, incentives worth Rs 165.74 were given to four pharmaceutical companies for making APIs. These were Dr Reddy’s Laboratories Limited, Biocon Limited, Strides Pharma Science Limited and Premier Medical Corporation Private Limited. In the same month, around 22 projects to make APIs came up under the PLI scheme. In November, the government approved 51 pharma companies under the bulk drug PLI scheme. 

Volume growth for pharmaceuticals was muted, primarily due to the delayed monsoon, according to Aniket Dani, director-research at CRISIL Market Intelligence & Analytics. “Though some players are facing pricing pressure with China coming back to normalcy, bulk drug exports still saw moderate growth, mostly driven by an uptick in volumes,” he told The Core. 

Green Hydrogen

The government announced production-linked incentive (PLI) schemes to boost the manufacturing of green hydrogen and electrolysers in the country in January 2023. The National Green Hydrogen Mission was proposed with a total initial outlay of Rs 19,744 crore, out of which Rs 17,490 crore has been kept for the PLIs. 

In September, Bhupinder Singh Bhalla, secretary for the Ministry of Renewable Energy said that the first tranche of the incentive scheme would be out soon.

The scheme is still in its nascent stage and its announcement has led to a significant interest in green hydrogen production with small and large players pouring in investments already. 

For instance, Reliance Industries has partnered with Danish firm Stiesdal to manufacture electrolysers, used to produce green hydrogen, at its plant in Jamnagar. Similarly, it was reported that L&T, along with its green hydrogen joint venture partners, Indian Oil Corporation and ReNew, will invest Rs 32,000 crore in their green hydrogen businesses over the next three to five years. 

Adani New Industries announced that it would invest $50 billion over ten years for green hydrogen production and to build an ecosystem around it, partnering with French company Total Energies. JSW Energy also announced setting up a 3,800-tonne hydrogen plant at its Vijayanagar facility, which would be ready by 2025. 

The centre also floated its first tender for green hydrogen and electrolyser manufacturing this year for which about a dozen companies, including the four mentioned above, have expressed interest. 

Green hydrogen is being touted as a sunrise industry for India, especially as an export-based sector, and this year it has seen a strong push. But its impact and implementation will only be better measured in the coming years.