Apple’s decision to manufacture iPhone 14 in India is partially a result of the US-China tensions but also serves to cater the growing domestic market. Apple is a huge test case for India, and if it is able to deliver the promised number of handsets, that will be enough of a push for many other global manufacturers to overcome the risks of a difficult business environment which has been a key obstacle for many years. India is also making its business environment competitive to attract more foreign investments. India has risen to the 52nd spot in EIU’s global business environment rankings, up from the 62nd spot five years ago and now ranks above China.
New Factory of the World?
The deglobalization trend has ramped up since the Trump era, followed by the pandemic and Russian war. But ideally, self-sufficiency is still a stretched concept so even as the happy marriage between the West and the East comes to an end, there will be new alliances formed. That, precisely, was the theme of our Q2 quarterly outlook, The Fragmentation Game, and this game brings a lot of potential opportunities for Asia and particularly India.
As companies try to diversify their supply chains and move their production out of China – be it for geopolitical reasons or the high labor costs (as shown in the chart below) – they will be looking for places that offer cheap labor, manufacturing scale and domestic demand. India realizes that opportunity and has launched ambitious programs to attract global manufacturing, which includes corporate tax cuts, investment incentives and infrastructure spending. The government’s latest scheme to offer production linked incentives (PLI) to attract manufacturers is intended to offer $25bn in incentives over the next five years and generate an incremental output for $400bn with about 6 million additional jobs. The share of manufacturing in India’s GDP could increase from 15.6% currently to 21% by 2031, and, in the process, double India’s export market share.
Staying Ahead on the Digitization Curve
India’s digital landscape has seen a vast turnaround in the last decade. A growing broadband penetration, with over 50% of the population now having access to internet, along with low data charges has helped deepen the push for technology. The initiative on India Stack, a comprehensive set of APIs that allows governments, businesses, startups and developers to utilize a unique digital infrastructure to offer identity, payment, healthcare and other services. This digital infrastructure is interoperable and “stacked” together — meaning that private companies can build apps integrated with state services to provide consumers with seamless access to everything from welfare payments to loan applications.