Why is India's local laptop production weak despite one year of PLI?

Prime Minister Narendra Modi rode to power with the promise of ‘vikas’ or development. And just four months after taking the oath, on September 25, 2014, he launched the 'Make in India Mission' at Vigyan Bhavan in New Delhi.

The aim was to take the share of the manufacturing sector in GDP to 25% by 2022, up from the then 15%.

Eight years on, the share of manufacturing in GDP is 17% now -- way below the target of 25%. It still is a work in progress.

The ‘Make in India’ push got a shot in the arm in 2020, when the government launched Production Linked Incentive scheme. It was later expanded to include more than a dozen sectors-- with an estimated outlay of Rs 2.75 trillion.

The government’s strategy, combined with a huge domestic market, has helped India become the world’s second-biggest mobile phone producer after China.

In a bid to replicate this success with other electronics, and cut imports, especially from China, the government last year launched a PLI scheme worth Rs 7,350 crore to boost local manufacturing and exports of IT products such as laptops, tablets, all-in-one personal computers and servers. 

The report card for the first year is in. And production under the scheme has been lacklustre.

Only four of the 14 eligible players under the scheme in the first year of operations have succeeded in meeting their production targets and will receive incentives. Business Standard reported on Tuesday that at least one global player is already planning to move out of the scheme after the second year because it feels the PLI scheme is not attractive enough.

Imports of laptops and tablets shot through the roof as local production remained way short of expectations. They have gone up sharply by over 53% from $5.2 billion in FY21 to $8.0 billion in FY22. This comes amid strong demand for laptops, especially in the IT sector.

China accounts for over 72% of all laptop and tablet imports by value.

But, there is a silver lining as, according to market research firm Canalys, India’s PC shipments jumped by 48% in the first quarter of this calendar year to a record 5.8 million units.

India now accounts for 5% of global PC shipments, compared with just 3% two years ago. Around 18% of all PCs sold in India are now manufactured locally, Canalys says.

But here too a majority of the components used in making PCs are imported.

There is no duty on imports of laptops and IT products as India is a signatory to the World Trade Organization’s Information Technology Agreement, which India joined in 1997.

The plurilateral agreement covers a large number of high technology products, including computers, telecom equipment, semiconductors, semiconductor manufacturing and testing equipment, software, scientific instruments, as well as most of the parts and accessories of these products. Mobile phones do not come under ITA. 

India, on its part, says its experience with the ITA has been most discouraging, almost wiping out the IT industry from the country. The real gainer from the agreement, it says, has been China.

In 2015, the government said that ITA has proved to be a barrier to the domestic electronic manufacturing sector's growth.

Pankaj Mohindroo, Chairman, India Cellular and Electronics Association says laptop and PC manufacturing in India has been a sad story. ITA nearly destroyed the electronics manufacturing industry , he says adding that computers should be accorded second-highest priority after smartphones. Govt went ahead with inadequate PLI outlay he believes. India should look at the world market while making policies and companies have been making PCs in India for govt orders. IT hardware production under PLI in the first year (FY22) was Rs 2,000 crore.  

The Manufacturers Association of Information Technology (MAIT), the apex IT hardware association, had last year said the scheme’s outlay is insignificant for global players to relocate their facilities from China or other countries to India. 

MAIT has requested the government to double the duration of the scheme to eight years and increase the incentive from 1-4% to 6.5% for PCs and 8.5% for servers.

MAIT’s analysis show that that the current allocation for IT hardware PLI needs to be increased three-fold to around Rs 21,000-22,000 crore.

 And this figure is based on the association’s more moderate demand to increase the incentive to 5% for five years.

The outlay for mobile phone PLI is Rs 40,951 crore over 5 years, with incentives ranging between 4-6% annually. 

The global PC and tablet market is worth around $230 billion. Although India accounts for a fraction of that at around $11 billion, a right push from the government will indeed go a long way to reduce import dependency and establish the country as an export and manufacturing hub in this space too