IT Hub India Seeks to Chip away at China’s Grip on Electronics

· India looking to produce electronic items for domestic market that defy Western model of ‘use and throw’, as it eyes pivot from IT services to production

· Country also set to benefit from China’s ‘trust deficit’ arising from zero-Covid policy that disrupted supply chains and spurred firms like Apple and Foxconn to look elsewhere, insider says

Rachna Thakur, 21, ploughs through her work on a laptop screen that regularly flashes, stopping her flow and making it difficult to concentrate. But for now, there is little she can do about it.

“It is too expensive to repair or upgrade,” said the student, who lives in Delhi.

For millions in India, her plight will strike a chord, as they cannot afford to scrap electronics from global brands which quickly become outdated. But now the nation’s edged-out home-grown sector is plotting ways to meet local needs.

“Our model is to create products which are exactly what the market wants,” said Ajai Chowdhry, chairman of the EPIC Foundation, a non-profit industry initiative launched last year. “This whole Western model of use and throw is not what India does.”

The organisation has released its first product, a computer tablet for education, that can easily be mended and revamped. The initiative is in its infancy but highlights a broader India programme to pivot from IT services into actually making electronic products.

Three years ago, New Delhi launched financial incentives worth US$26 billion to scale up production in 14 sectors, including electronic goods like laptops and mobile phones, as well as electric vehicles.

India, which spends US$25 billion a year to import semiconductors, also launched a programme to make chips wherein the federal government, together with some states, promised to invest up to 70 per cent of the cost of setting up a plant.

That scheme was launched when many of China’s global customers were facing big problems due to its supply chain disruption during the Covid-19 pandemic.

Taiwan’s Foxconn, which makes iPhones for Apple, was forced to cut output last year when a lot of workers at its massive factory in Henan province were infected with coronavirus.

Many global companies are now looking to diversify their supply chains.

“The trust deficit for China has increased, unfortunately, because of the zero-Covid policy. So it is an opportunity for India to step into that spot,” said Chowdhry. “If we create design centres and convert India into a product nation, I think there is a huge opportunity … to occupy maybe 15-20 per cent of what China is doing.”

India is already the second-largest producer of mobile phones after China, according to Indian government data. The manufacturing of other electronic products is also picking up, industry executives say.

Several European and US companies are also talking to potential Indian partners, say industry executives. South Korean electronics giant Samsung has already aggressively expanded phone production in India.

Earlier this month, Foxconn boss Young Liu visited India and reaffirmed the company’s commitment to the country, where it has a plant making iPhones in Tamil Nadu state. The firm started making iPhones in India in 2019, according to news reports.

Indian mining giant Vedanta has also signed an agreement with Foxconn, to make semiconductors.

Insiders say Foxconn’s plans will hinge on Apple’s requirements. In September, Apple said it would manufacture its latest phone, the iPhone14, in India where it posted record revenue last quarter, even as its total sales slipped 5 per cent.

Apple is reshuffling the management of its international business to put a bigger focus on India, according to a Bloomberg report on Thursday.

Apple and Foxconn have both lobbied and won labour reforms in the southern Indian state of Karnataka, leading to the introduction of laws allowing 12-hour shifts – up from the previous limit of nine – and nighttime work for women, similar to practices in China, according to a Financial Times report.

Chowdhry said Foxconn’s interest in making iPhones as well as chips in India showed the firm wants to be in “every piece” of the chain and “seems to be looking at India in an extremely big way”.

That is “very good news” because such a large organisation coming to India “gives a lot of brownie points”.

Chowdhry added: “Over the next five years, the market for electronics in the country is expected to grow to US$400 billion from less than US$100 billion currently.”

India’s large pool of technical manpower, and its massive number of consumers, is drawing global firms, say industry executives.

“There is an increasing tendency to look at India as an alternative platform for manufacturing,” said PN Sudarshan, a partner at the consultancy firm Deloitte India.

Hurdles ahead

However, there are multiple challenges ahead before the country develops a robust ecosystem for electronics.

Indian manufacturers are hugely dependent on China for sourcing components, although the degree varies across products.

Sanjay Agarwal, president of Electronics Industries Association of India (ELCINA), said that the domestic industry is aiming to triple production of components to US$300 billion in four years.

The government has yet to approve any of the three proposals it has received for making semiconductors, from Vedanta Technology Company, the International Semiconductor Consortium – a joint venture between Abu Dhabi’s Next Orbit Ventures and Israel’s Tower Semiconductor – and the Singapore-based IGSS Ventures.

Insiders say Vedanta’s joint venture with Foxconn is in pole position and likely to get approval in a couple of months. But the industry will need a robust training programme to ensure employees are work-ready.

“Otherwise we will have a situation where we have the capacity but not the capability,” said Sudarshan.

Semiconductor manufacturers are likely to start with 28-nanometre chips – which cover most domestic needs – rather than the more sophisticated 5 nano-metre chips, but, even so, manufacturers will still need to get to grips with the necessary technology.

Chips – at the heart of electronic devices – are one of the world’s most state-of-the-art technologies, with Taiwan, where Foxconn began, already having decades of experience.

The United States and India will sign an agreement to boost the coordination of their chip industry plans, including more sharing of information.

Still, New Delhi will need to stitch together more global partnerships because electronics span a vast global chain, industry experts say.

“Initially, for certain areas, we will have to collaborate globally to create that capability”, with Taiwan becoming “a great global partner”, said Chowdhry.

In fact, tension between Taiwan and mainland China may end up helping New Delhi, as it means “there is more interest in India from Taiwan than ever”.

The self-governed island nation, which Beijing sees as a renegade province, “needs to diversify its investments in China”, he said.