Branding Make-in-India: The New Normal

Backdrop of recent Indian economic situation due to COVID-19  

The COVID-19 pandemic has disrupted global value chains of all sorts of business and triggered the deepest global recessions in decades. - The World Trade Organisation expects merchandise trade to contract by 13-32% in 2020. In light of the pandemic, a re-orientation towards an inward looking strategy is making the rounds. Countries including India have recognized the need to reduce their interactions with the rest of the world and bolster domestic manufacturing to cater local industry demands.

Providing full support to Prime Minister Narendra Modi’s flagship vision of Atmanirbhar Bharat (a self-reliant India), certain priority sectors so far including Food Processing, Organic Farming, Iron & Steel, Aluminium & Copper, Agrochemicals, Electronics, Industrial Machinery, Furniture, Leather & Footwear, Auto Parts, Textiles, Marine products and Pharmaceutical have been identified based on massive potential for import substitution and export promotion. During the past few months, the Ministry of Commerce and Industry has initiated key steps in this direction and focused on two key industries namely pharmaceuticals and electronic components.

These two industries form an important component of India’s trade basket with pharmaceuticals having a share of around 7% and 1.5% in India’s total exports and imports respectively while electronic goods having a share of 4% and 12% respectively. In the first 3 months of FY21 there has been positive growth in exports of pharmaceuticals but a notable fall of 9% in imports. India continues to be a key supplier of generic and affordable medicines for the global market, but its overwhelming dependence on China for critical raw materials has emerged as a concern in light of the Covid-19 outbreak. With the need of the hour where the COVID-19 cases are shooting up day-by-day, the demand for the key pharmaceutical products have resulted in raw material shortages and exposed its dependence on Chinese imports. On the other hand, exports of electronic goods in these three months have contracted severely by 30% while imports recorded a fall of 46%. The weakness in the imports in the last few months reflects the need to focus on domestic manufacturing to cater to local demand.

To reduce the country’s import reliance and promote exports, the Ministry has enlisted seven schemes, four for the pharmaceuticals sector and three for manufacturing of electronics and electronic components in India.

Pharmaceutical Sector (PLIS)

One scheme aims for setting up three drug manufacturing hubs with a total outlay of INR 30 bn and another scheme for promoting domestic manufacturing of identified 53 critical KSMs, Drug Intermediaries and APIs. It intends to boost domestic manufacturing of the said raw materials by attracting large investment in this sector to ensure that India has a sustainable domestic supply and reduce India’s import dependence on other countries.

The PLI scheme proposes to provide financial incentives on incremental sales ranging from 5% to 20% over a period of five to six years depending on the type of eligible products i.e. fermentation-based or chemical synthesis-based products.

The critical products include KSM, drug intermediaries, and APIs for antibiotics, steroids tuberculosis and diabetic medication amongst others which are identified as critical for manufacturing in India. Currently, India is dependent on import of these basic raw materials that are used to produce finished dosage formulations.

Medical Device Manufacturing Sector (PLIS)

India also announced a scheme for setting up four medical device manufacturing parks with a total outlay of INR 4 bn and another scheme for promoting domestic manufacturing of certain critical medical devices in India. The said scheme intends to attract large investments in medical device manufacturing including cancer care, radiotherapy, radiology and imaging medical devices, anaesthetics, cardio-respiratory, renal care and all implants devices.

This scheme proposes to provide financial incentives on incremental sales of 5% for a period of five years.

The detailed implementation guidelines of the aforesaid schemes have been released last week on 27 July 2020, which opens the application window for 120 days from the said date for the pharmaceutical companies and medical device manufacturing companies. Further, the State Governments can also apply now to avail financial incentives to set-up bulk drug and medical device parks in their state under the respective schemes. 

Electronic Component Industry (SPECS)

In order to promote the Electronics System Design Manufacturing (EDSM) Industry, India announced a Scheme for Promotion for manufacturing of Electronic Components and Semiconductor (SPECS) during April 2020. The objective of SPECS is to offset the disability for domestic manufacturing of components and semiconductors in order to strengthen the electronics manufacturing ecosystem in the country. 

SPECS aims to provide financial incentives of 25% of capital expenditure incurred for manufacturing of electronic components subject to eligibility of the products and investment threshold. Key products covered under SPECS pertains to Electronic Components, Semiconductor / Display Fabrication units, ATMP units, specialized sub-assemblies and capital goods for manufacture of said goods. However, it shall be pertinent to note that mobiles and consumer electronics have been excluded from the said Scheme.

Electronic Industry - Mobile Manufacturing (PLIS)

Further, in order to provide an impetus to domestic manufacturing and attracting investments in the electronic supply chain, India also introduced Production Linked Incentive Scheme for Electronics Manufacturing. The objective is to provide boost to the indigenous manufacturing of mobile phones and various electronic components under the Make-in-India program of Government of India. 

PLIS provides incentives of 4% to 6% on incremental sales of the eligible goods manufactured in India for a period of 5 years.

We believe that the aforesaid Schemes are a huge move to attract investments in EDSM sector and reduce India’s heavy dependence of countries like China. Recently, large scale contract manufacturer of iPhone, Foxconn, plans to expand its manufacturing facilities in India with USD 1 bn investment. This announcement is followed by Taiwan-based iPhone manufacturer Pegatron’s recent formation of a subsidiary company in Chennai, India. Pegatron is set to be the fourth contract manufacturer of iPhone which sets footprints in India.

Vision to Make-in India self-reliant - What lies ahead?

While the Indian Government is branding Make-in-India and promoting new investments in various priority sectors as mentioned above, the strategic and practical implementation of the same would take some considerable time. Further, considering the current scenario where India stands third in most affected nation due to COVID-19 pandemic, there would a lot of challenges posed on the Indian Government, entrepreneurs and the industry for attracting new investments in India. Also, India continues to be much less integrated with global value chains. However, this is a timely step in the right direction of making India self-