In the tussle with neighboring state Telengana over attracting investments, Andhra Chief Minister Chandrababu Naidu has managed to win a small battle with the decision of Xiaomi to establish its first manufacturing plant in India at Vishakapatnam.
Though an official announcement about Xiaomi’s India manufacturing has not been made yet, the company leaves very little to the imagination with its ‘Make in India’ hoarding that greets arrivals at Vishakapatnam airport.
“We’re about to take a huge step forward here in India! Can you take a guess?” teased Xiaomi’s India head Hugo Barra.
The move is also a victory for the Modi government, which has been trying all the tricks in the books to get at least some electronic manufacturers to shift their factories to India.
At present, the only big electronic manufacturers in India are Samsung and LG. Last week, Sony also announced that it was going to get its Bravia Android TVs made in India via a contractor.
Samsung and LG set up their India manufacturing operations over a decade ago as the Indian government made it very expensive to import fully built TVs and refrigerators to India, while reducing the import duties on components such as circuit boards and LCD panels to zero or near zero levels. This led manufacturers to import these components and screw them together in India, giving employment to thousands of people in places like Gurgaon.
Earlier this year, the government moved to do something similar with mobile phones. In fact, over the past ten years, mobile phones have become a much bigger industry compared to TVs or computers in India.
Estimating the total number of mobile phones sold in India at around 22 cr in a year, and an average price of around 4,500, the mobile phone industry is worth about Rs 1 lakh crore or Rs 1 trillion per year. At that scale, it is bigger than the market for traditional consumer electronics such as TVs.
At present over 90% of the mobile phones sold in India are made outside the country.
While Nokia did establish a factory in Chennai, various market and company problems — compounded by government interference in India — ensured the shutdown of the unit.
Micromax recently started making phones in India.
It must be kept in mind, however, that ‘manufacturing’ in electronics is a bit of a misnomer. The correct term is ‘assembling’.
To manufacture a mobile phone, companies would need to make printed circuit boards (mother boards), integrated circuits or chips, LCD panels and so on here.
While Nokia did manage to get many of these things manufactured in India, most of the other companies that claim to manufacture phones in India simply import everything and just screw them together in the country. (The Nokia factory had only around 1,200 direct employees, though there were many indirect beneficiaries such as logistics partners and so on.)
The reason for assembling, and not manufacturing, is simple – India does not have the capacity to produce micro-chips (processors, memory chips, radio chips and so on) as it does not have semiconductor fabrication units or fabs.
India also does not have even a single plant that produces LCD panels. These components make up about two-thirds of the cost of a phone.
So even if every phone sold in India was ‘made in India’, India would still be forced to import about Rs 65,000 cr ($10 bln) worth of components from countries like China.
However, companies like Xiaomi opening assembling plants in India can be seen as a first step.
TELANGANA VS ANDHRA
Ever since bifurcation, Telangana and Andhra Pradesh governments have been offering one concession after another to big industries to try to attract them to set up shop in the two states.
They offer concessions on land, water allocations, taxes and other assurances to industry.
Recently, Center for Science and Environment’s ‘Down To Earth‘ magazine said Telangana’s new industrial policy has diluted government checks in a big way. The policy, the magazine said, even offers self-certification and express clearance to project proposals within 15 days, and freedom from random inspections.
“Both states have allocated around 10 per cent of their water and large land banks for industry. Telangana is facing a prolonged agrarian crisis with 89 per cent of farmers’ families in debt – and neither state has taken steps to improve agriculture on which most people depend,” it said.
On the other hand, Andhra Pradesh is offering a land bank of half a million hectares and is trying to attract an investment of Rs 2 lakh crore. Like Telangana, the state is offering its natural resources uninhibitedly, said the magazine.