‘Make in India’: Can South Asian giant surpass China and become world’s biggest factory?
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: ‘Make in India’: Can South Asian giant surpass China and become world’s biggest factory?

HOSUR/CHENNAI/SANAND - When Mr Ganesh Sethuraman moved to India in 2023 to set up a new manufacturing facility for his Singapore employer, JLK Automation, he quickly learnt that perseverance was essential for doing business in the country.

“After we decided on the location, we expected it to take three months to get all the paperwork done, but it took us over six months. I remember one day when I put down 150 signatures – there were so many documents!” the 34-year-old said.

JLK, an electronics testing equipment maker, is setting up its first factory outside of China and Singapore in India. Following in the footsteps of its key customers, Taiwanese companies Foxconn and Pegatron, which are contract manufacturers for Apple products like iPhones and iPads, JLK picked the southern Indian state of Tamil Nadu, where Mr Sethuraman happened to be born and raised.

A Tamil speaker who headed JLK’s research wing, Mr Sethuraman was “the natural choice” to steer the shift. In August 2023, he moved with his wife and toddler to a rented house in sunny Hosur, an electronics and electric vehicle hub in Tamil Nadu.

Nestled among metamorphic rocks, the small town has no cinema hall, mall or park, but is an ideal home for the JLK factory. It is situated just 42km from Indian giant Tata Electronics and 90km from Foxconn’s new factory near tech hub Bengaluru’s international airport.

The company will employ around 80 people here, only a fraction of the 600 employed in its three factories in China. But JLK’s managing director, Mr Eugene Tan, said the company would expand gradually, “if – or when – India’s industrial environment becomes more efficient”.

The gold rush 2.0

Foreign manufacturers like South Korea’s Hyundai and Samsung and Japan’s Toyota and Suzuki have long made cars and appliances for the Indian market. JLK, on the other hand, is part of a new wave of multinational manufacturers of phones, batteries, wind turbines, toys and footwear rushing to India to make products for the export market, as companies consider a China-plus-one strategy.

Companies burned by supply chain disruptions during the Covid-19 pandemic and facing rising labour costs want to reduce their dependence on China. Diversification is also a hedge against geopolitical uncertainties triggered by China-US tensions.

This global scramble to find new manufacturing hubs comes at a crucial moment for India – the world’s most populous country – as it seeks to benefit from a demographic dividend. Over 65 per cent of its population, or 808 million people, are of the productive age of under 35 years, and are employable at a fifth to a third of China’s daily wages today.

World Bank president Ajay Banga called this moment India’s “window of opportunity that is available only for a short period” of three to four years before alternative supply chains are set up. Some economists estimate the window will be open for up to 10 years.

Prime Minister Narendra Modi in 2014 launched the ‘Make in India’ campaign to push domestic manufacturing. But the ambitious goal of pushing the share of manufacturing to 25 per cent of gross domestic product (GDP) by 2022 was not met, and the deadline is now 2025. Manufacturing accounts for 17 per cent of GDP, according to the government.

Still, there is no doubt India’s manufacturing is growing, with exports reaching a record US$447.46 billion (S$601.4 billion) in the 2022-2023 financial year, from US$422 billion the previous year.

Large manufacturers like Foxconn and, most recently, American semiconductor-maker Micron Technology made their first moves into Indian manufacturing in 2022 and 2023, respectively, and today, their trusted component-makers are following suit.

American plane manufacturer Boeing opened its largest engineering centre outside the United States in the tech hub of Bengaluru in southern India, while GE Aerospace is making more aeroplane parts in the country for export.

Tesla’s rival VinFast from Vietnam is opening a US$500 million electrical vehicle plant in Tamil Nadu.

More are on their way. The most frenzied activity is in India’s most industrialised states of Tamil Nadu in the south and Gujarat in the west. But new industrial parks in Telangana, Uttar Pradesh and Maharashtra, aside from the tech cities of Bengaluru and Gurugram, are also emerging as contenders for foreign investment.

Electronics manufacturing target: US$300 billion by 2026

People sat up and took note when Apple moved some of its iPhone manufacturing capacities from China to India, spotlighting the nation’s potential in electronics manufacturing.

The size of India’s electronics manufacturing sector has grown 2.4 times, from US$30 billion in 2014 to US$101.9 billion in 2022. The target: US$300 billion by 2026.

As high-value electronics manufacturers explore developing countries such as Vietnam, Thailand and Mexico, the Modi government is wooing multinationals with subsidies and tax incentives like never before.

Its production-linked incentives for large-scale manufacturers of mobile phones and electronics in early 2020 caught the attention of phone majors almost immediately.

Apple’s Taiwanese contract manufacturers Foxconn and Wistron, which had been in India since 2017 and 2008, respectively, expanded their iPhone manufacturing operations in Tamil Nadu. Since 2022, the iPhone 14 has been made in India, and from September 2023, the iPhone 15 as well, when another Taiwanese supplier Pegatron set up a plant in Chennai.

Wistron quit India over labour issues in 2023, but its operations were quickly taken over by Tata Electronics at its plant in Hosur.

Underpinning the rapid activity is Apple’s desire to turn India into an export hub for iPhones and diversify its reliance on China. It exports 70 per cent of its India output today.

Samsung, which has operated in India since 1996, has also expanded phone production in Noida, Uttar Pradesh.

Consequently, in 2023, India produced two billion devices, making it the second-biggest mobile phone-producing country after China, which made four times as many.

Electronics exports grew from US$8.4 billion in 2018-2019 to US$22.7 billion in 2022-2023. Over half of that boost came from mobile phone exports.

The southern Indian state of Tamil Nadu is the biggest exporter of electronics in India, and its capital Chennai is an emerging electronics hub because of its access to sea ports and highways, on top of having the largest number of factories in the country. PHOTO: RAMESH S.

Opportunities for Singapore

Singapore manufacturers like JLK who support and supply large multinational corporations are “keen to strike when the iron is hot”, said Mr G. Jayakrishnan, Enterprise Singapore’s (EnterpriseSG) executive director for South Asia, the Middle East and Africa. They are seizing the chance to plug into these supply chains in India, especially with precision electronic parts and intelligent digital technologies for industrial processes.

“Many Singapore companies have chosen Tamil Nadu as a base for their manufacturing activities,” Mr Jayakrishnan added, crediting the state for being one of the most industrialised, “with a skilled talent pool and robust manufacturing infrastructure”.

Singapore has been India’s largest source of foreign direct investment for five consecutive years, with US$17.2 billion invested in the 2022-2023 financial year, outranking the US and Mauritius.

According to Indian government figures, more than 440 companies from Singapore are registered in India in various sectors, including JLK, industry solutions company Flextronics Technologies and manufacturing services company Hi-P.

Mr Jayakrishnan noted that there are opportunities for Singapore firms in different sectors in manufacturing, if they can service global conglomerates expanding their Indian operations, like Boeing.

“Suppliers and solution providers can generate new revenue streams by partnering with these MNCs and helping them increase their output and enhance operational efficiencies,” he added.

Singapore is also preparing the younger generation for a career in India.

Mr Kenneth Sim, 25, a first-year business analytics student at the Singapore University of Social Sciences, is keen to apply for the upcoming India Ready Talent Programme run by EnterpriseSG and the Confederation of Indian Industry.

The programme, which starts in May, will offer 50 internship positions of three to six months at 13 Indian and Singapore companies, including CapitaLand Investment and Tata Steel. It aims to offer Singapore university and polytechnic students “first-hand experience of the local corporate and business culture”.

Mr Sim felt India was “a unique opportunity”. He had visited the country in 2023 on a study trip and liked the “driven and innovative” people there.

He said: “It’s not just tech; new iPhones are going to be manufactured there. We all know India is going to be up-and-coming.”

Supply chain gap for electronics

But foreign manufacturers in India have complained they cannot match Chinese volumes because of the tariffs of 8.5 per cent to 15 per cent that they pay on the estimated 80 per cent to 90 per cent of phone components they import. The India Cellular and Electronics Association reported that China and Vietnam had lower average tariffs of 0.7 per cent.

In response, the Modi government on Jan 31 cut import duties on mobile phone parts like battery covers and camera lenses to 10 per cent from 15 per cent.

For “long-term competitiveness”, however, the “government’s real task is to improve the component ecosystem” that supplies parts to foreign multinationals, said Ministry of Electronics and Information Technology secretary S. Krishnan. He said the next round of incentives from the government would focus on electronics component manufacturing.

Going a step further, Tamil Nadu, India’s largest electronics exporting state, is offering two separate subsidies: one for the manufacture of components with low value addition, such as screws or packaging, and the other for advanced electronic components that add more than 20 per cent value to the product.

“We have a population of both low-skilled machine operators and highly educated engineers, so we also need to address these diverse needs for employment (while building a supply chain),” said Tamil Nadu industries secretary Arun Roy.

India’s semiconductor push

The next push in the electronics chain is semiconductor chip manufacturing, boosted by the entry of Micron.

At Micron’s upcoming plant in the Sanand Industrial Estate in Gujarat, multiple signs warn workers not to drive above the speed of 10kmh.

Dump trucks carrying construction materials crawl in and out of the compound, in a cluster meant for multinational companies. Singapore food manufacturer Tong Garden also has a manufacturing unit there.

The Indian authorities, in contrast, have moved at lightning speed to shake off the country’s image as a lumbering elephant and take advantage of global headwinds.

The Chinese authorities barred Micron from big infrastructure projects in May 2023 in what was seen as retaliation for Washington restricting Beijing’s access to key technology.

India’s federal government approved Micron’s project in June 2023, and within a week, land was identified just 36km from Ahmedabad, Gujarat’s capital, and an agreement signed between the company and the state government.

On Sept 23, construction started on the US$2.7 billion plant, which the government is subsidising by US$1.34 billion under its semiconductor incentive scheme.

The first phase of the plant will be ready by early 2025, but it will not make fabs, which are at the top end of the semiconductor chain. The plant will assemble and test finished chips for use in electronic devices, a more labour-intensive process in which China is the leader.

It is expected to create 15,000 jobs, and 200 initial hires are undergoing training in Malaysia on testing and assembling silicon wafers.

Micron Technology’s senior vice-president of global assembly and testing Gursharan Singh said “the abundance of highly skilled engineering talent in India will enable us to scale our operations quickly”.

The authorities expect the entry of Micron to have a multiplier effect.

Dr Rahul Gupta, managing director of the Gujarat Industrial Development Corporation, said a substantial portion of land at Sanand has been earmarked for Micron’s vendors like South Korea-based Simmtech, which makes circuit boards for semiconductors.

The Indian government approved the establishment of three semiconductor units with investments of more than US$15 billion on Feb 29, including one by Taiwan’s Powerchip Semiconductor, and another by Japan’s Renesas Electronics Corporation and Thailand’s Stars Microelectronics. The third is a US$3.25 billion project by Tata Semiconductor Assembly and Test Private Limited in Morigaon, Assam.

Can India overtake China?

India’s growth trajectory is unique. Unlike Chinese and Western economies, which were built on industrialisation, India’s rise is led by the service sector, due in part to its information technology prowess. In 2022-2023, services contributed 53 per cent of GDP.

As the effort to boost manufacturing has accelerated only in recent years, experts said India would have to chart its own course.

The manufacturing industry in China dwarfs that of India, being 10 times larger

Economist Arvind Subramanian, former chief economic adviser to the Indian government, believes India should focus on one or two sectors. “I have no problem (with India) beginning (semiconductor manufacturing) with assembly, because that is providing the jobs, and then you graduate to the really advanced areas.”

But he warned that “going forward, even these labour-intensive activities will become less intensive because of automation”.

Upgrading manufacturing is crucial for India to sustain its high level of growth, reduce poverty levels, and provide meaningful employment to a young population.

India’s growth estimate for 2023-2024 is 7.6 per cent, according to the government, which has projected that a manufacturing boost would push it to 8 per cent for several years.

Experts and industrialists alike said that while the potential is there, India still has a long way to go to challenge China, which has a 31 per cent share of global manufacturing compared with India’s 3.1 per cent.

With a contribution amounting to 17% of GDP, the manufacturing sector in India continues to experience steady growth

India has 246,504 factories and over 3,800 industrial parks, and hires 35.6 million workers, compared with China’s 2.8 million factories, over 20,000 industrial parks and 83 million workers. However, it took China 20 years to rise from the world’s sixth-largest manufacturer in 1990 to pole position in 2010, overtaking the US. In 2020, India ranked sixth.

Can red tape be replaced by the red carpet?

Investors told The Straits Times that they are drawn to India by the national government’s enthusiastic subsidies, the large domestic market, cost-effectiveness, and the abundance of both low-skilled labour and specialised engineers. However, they also point to the inadequate infrastructure and sluggish bureaucracy.

A report by the Boston Consulting Group identified India as a future export manufacturing powerhouse, but also highlighted “fewer free-trade agreements with nations other than the members of Asean” as a drawback.

As a result, Vietnam, with its lower tariffs and membership in regional trade pacts with Asean nations, besides international trade deals such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, is a bigger beneficiary of China-plus-one.

“The first choices of most companies looking at China-plus-one... are Vietnam, the Philippines and countries where probably, culturally, there is not too much of a difference and, location-wise, it’s easier to ship (products),” said Mr Rajeev Singh, partner and consumer industry leader at Deloitte Asia Pacific.

Efforts are under way to plug these gaps, including a single-window system to help businesses get clearances faster amid doubled investment in highways and ports.

But the transformation has been slow. Mr Ajit Shah, president of the Sanand Industries Association, noted that not everyone gets the Micron treatment, where the government expedited approvals.

Usually, “there is a one-window solution, (but) with many doors behind it”, he said.

Industrial parks

India’s vast tracts of land hold potential for industrial parks. Many are being built by private developers.

One of them, Singapore real estate group CapitaLand Investment, runs 12 IT parks in India, and nine plug-and-play industrial and logistics facilities. It began in May 2022 with buying and customising an existing 0.42 million sq ft manufacturing facility in Tamil Nadu’s Chengalpattu, now leased by Pegatron.

“It can take two years for companies to lease land from the government and build a factory. But if they use our ready-made factories that have power, water connections and all the approvals, they can start operating in just three to six months,” said CapitaLand’s chief executive Sanjeev Dasgupta.

American wind blade-maker TPI Composites, Japanese piano-maker Yamaha Music, and Taiwanese smartphone component manufacturers Foxlink and Maxcable are among the foreign companies that have leased CapitaLand’s industrial facilities around Chennai.

Singapore is also helping Tamil Nadu develop a net-zero industrial park with a focus on electronics and electric vehicles.

Culture shocks and friendships

Mr Jules Shih, director of the Taiwan External Trade Development Council in Chennai, said a big culture shock for Taiwanese companies in India is the “extreme slowdown” in the government’s processing of paperwork once the foreign manufacturer is actually in India. Another is the lower productivity of Indian workers, many of whom have never worked in factories, compared with what Taiwanese companies have become used to with Chinese workers.

Mr Paul Wang, sales head of TSMT Technology, a Taiwanese manufacturer of circuit boards for phones, has been in Chengalpattu since 2017. He said that while salaries in India were a third of those in China, the workers’ lower efficiency almost cancelled out the savings.

TSMT employs 800 people in its factory, a majority of them twenty-something locals.

“It’s not that (Indian workers) are less skilled; their attitude to work is different. Every day, 10 per cent of workers are absent. In China, it is 1 per cent a day. We have to employ more contract labourers here to meet the production target,” said Mr Wang.

Just back from two days’ leave for his younger sister’s wedding, deputy section manager Murali A, 29, an electrical diploma holder who had worked his way up from trainee in TSMT over six years, said: “TSMT paid us through the pandemic. Although Taiwanese, the company also tries to celebrate Pongal and Deepavali with us.”

He said he had used his salary to pay off his farmer father’s loans and help his two sisters get married.

Mr Wang, who has lived in India for seven years with his wife and two children, who now go to local schools and learn English and Tamil, said: “In Taiwan, business is about benefit, there’s no personal touch. In India, business is built through friendship.”

This insight has helped TSMT navigate a country with which it has little language or cultural familiarity. It is building a new factory focused on exports.

JLK’s Mr Sethuraman said that after over a decade in Singapore, he has had to relearn some Indian realities, like the fluctuating power supply, which can fry his devices, the wild Indian highways that are busier than they were in his childhood, and the gregarious neighbours who drop in unannounced with snacks for a chat.

But as he walks through the factory floor awaiting new equipment and technicians, he is excited. “Everything around me is under construction right now. Ten years from now, this place could be a real manufacturing hub.”