With the recent launch of Apple’s iPhone 16, India’s manufacturing story has got a huge boost. The new ‘Made-in-India’ iPhone will now be available across the world. This is big. India may be the world's fastest growing large economy, but it is not creating enough jobs. Periodic labour surveys do not reflect the problem because people are not unemployed. Too many are stuck in low-productivity, informal jobs, not what they aspire to.

India has done well in services, but industrial success has been elusive — manufacturing is less than 15% of GDP, employing 11% of population, and exporting 2% of global goods. No country has risen historically without manufacturing, nor achieved success without exports. Asian tigers rose by exporting labour-intensive manufactures. China is the latest example.

iPhone shows the way | Apple’s iPhone chose India as its second manufacturing location. Its rapid success busts some myths. iPhone, made entirely in China until 2021, has already created 1.5L direct jobs in India, plus an estimated 4.5L indirect jobs while producing phones worth $14bn and exporting $10bn a year. This is only 14% of iPhone’s global production, and is expected to rise to 26% by 2026, according to JP Morgan.

To become a viable exporting hub, India still needs to attract iPhone’s component makers, who represent 85% of the value-add. They are mostly Chinese. They will add far more jobs, impart more skills, and transfer more technology. Only thus will our MSMEs get linked to global value chains. Thus, it is in our national interest to allow Chinese ancillaries.
Lessons for India | This story offers many lessons. First, shed the false myth that India is a big market. Fact is global brand leaders are not queuing up to ‘Make in India’. Apple phone sales in India were only 0.5% of global sales when it chose to make India a supply source. Many global brands are also seeking to diversify their global supply base. But India is not their top choice — it has a poor image as a manufacturing base.

A second lesson is that no country can create enough jobs with its domestic market. China, with a far bigger market, needed exports to succeed. Export success requires joining global value chains, which represent 70% of the $24tn world trade in goods. This will only be possible if India drops its tariffs to competitive levels. Every PLI scheme should have a sunset clause on high tariffs.

Third, the prime mover in creating jobs is not MSMEs but big companies to which smaller companies become suppliers. Yes, small companies in aggregate create far more jobs but action must begin at the top. Govt should target global brand leaders, especially those who are concerned about risks in China.

Fourth, the global brand leader doesn’t have to be Indian. To succeed in global market, you need a superior product. Since Indian companies have risen behind tariff walls, they have not learnt to invest in R&D to create superior products. To create a jobs revolution, India’s first step must be to woo world brands in labour-intensive sectors.

Fifth, India needs a skilled population but don’t place the cart before the horse. Most women in iPhone factories needed only 4-6 weeks of training, even when it was their first job. Our training institutions (like ITI and skills missions) should be closely integrated with industry. Apprenticeships, internships and on-the-job training are the way to go.

Sixth, iPhone’s story shows the right way to implement PLI. India has obvious cost disabilities versus China, Vietnam and other competitors. PLI is not a general subsidy to industry but for neutralising quantifiable disadvantages of India’s higher land, labour, and energy costs. PLI should encourage exports but it cannot do so because of WTO rules. The Smartphone PLI set high enough production targets that could only be achieved through exports.

Finally, a trust-building dialogue between govt and company is crucial to success. It took 15 months of patient negotiations by open-minded teams on both sides for iPhone decision to materialise.

Govt must pull out all stops | The iPhone story has sent a powerful signal to global companies that India can be a viable manufacturing destination. It is up to govt now to replicate this success in all labour-intensive sectors — garments, shoes, toys, food processing etc. It will have to be proactive. The PM of Vietnam actually showed up at Apple’s headquarters to persuade it to make iPads in his country. China incessantly woos foreign companies, but India’s politicians are not trained to do this. Only a handful of Indian states, mostly in south and west, even understand its importance. To become truly competitive, India still needs to implement economic reforms in land, labour, and capital. But it will all be worth it if we can rise from being a middle-income nation to a high-income one.

Gurcharan Das, November 5th 2024