Import Nation: Why India Still Lags In High-End Manufacturing

The world's biggest mobile phone factory is slated to open in India, but the country still buys its best electronics from abroad.

Fans check out Oneplus 6 smartphone at an India Launch event
Fans check out Oneplus 6 smartphone at an India Launch event
Anuj Srivas

NEW DELHI Last month, Indian Prime Minister Narendra Modi's government announced the grand opening of the world's largest mobile phone plant just outside India's capital. Spread over 35 acres in Noida's Sector 81, Samsung's Rs 4,500-crore facility will be able to produce 120 million smartphones and will create anywhere between 10,000 to 15,000 local jobs.

The announcement has largely been seen as a feather in the government's ‘Make in India" cap, with Commerce Minister Suresh Prabhu boasting about a "big leap forward" to meet India's growing appetite for digital devices. Over a 100 new mobile phone manufacturing plants have been opened in India in the last four years. Meanwhile, in 2017, India overtook the US to become the world's second-largest smartphone market after China.

However, what Prabhu's celebration leaves out is that even today, nearly 50% of the total electronic products sold in India are imported from other countries. The proportion of components that are imported and feed India's total demand for electronics is even higher, at approximately 75%-80%.

In recent years, imports of electronic items have surpassed gold and gold products and are well on the way to beat India's costliest import of all time — oil. More importantly, these increasing imports come despite India's push for local manufacturing and the Modi government's ‘Make-in-India" program.

Even as India's appetite for smartphones and other electronics products has increased, the notable increase in import of electronics items has started to dangerously impact the country's current account deficit. India's electronic items imports have nearly doubled in the last five years. In the fiscal year which ended in March 2014, the electronics trade deficit surpassed gold and gold products for the first time and has only increased over the last four years.

Rising electronics imports and low-level local value addition in India's mobile phone assembly plants all add up to a grim future.

According to Bloomberg, data for the 13 months to May 2018 shows that electronics imports were valued at $57.8 billion, far more than the $35.8 billion worth of gold purchases.

While smartphones don't account for all electronics imports, the failure of Make-in-India to make a dent in India's costly imports is worth examining.

While the number of mobile phone plants set up in India has indeed increased sharply, most of these "manufacturing units' are largely assembly centers, where workers put together sophisticated components that are imported from China and other Southeast Asian countries.

As The Wire has reported, a 2016 study by IIM-Bangalore and Counterpoint Research found that the current contribution of locally sourced (or Made in India) components and sub-components accounted for just 6% of total value of components that go into a phone, a fact that the study calls "economically unfortunate."

Soon to be replaced small-scale businesses selling mobile phone products in Jaipur, India — Photo: Jens Kalaene/DPA/ZUMA

For instance, in 2015, the total value of mobile phones sold in India was around $11.5 billion. Out of that, the "true local value addition generated in local component sourcing and local assembly will be close to $650 million", according to the IIM-Counterpoint study.

Rising electronics imports and low-level local value addition in India's mobile phone assembly plants all add up to a grim future. Another separate report by Deloitte Touche Tohmatsu has noted that India's electronics imports could surpass the country's oil imports by 2020. What, then, could reverse this situation?

A senior Indian executive of a Chinese smartphone company, who declined to be identified, told The Wire: "The problem plaguing electronics hardware production is the same that affects any high-level type of manufacturing in India. All the usual factors apply, including labor law reform and land acquisition problems. Taxation as well. What killed Nokia"s plant in Tamil Nadu, which was earlier the world's largest mobile phone plant? It was essentially a service tax controversy,"

Indeed, while foreign direct investment (FDI) inflows are largely seen as a bright spot for India, the amount of money that has come into the electronics category is less than 1% of total inflow. If the Modi government is still set on achieving its ambitious target of becoming "net zero imports' in electronics by 2020, it will need a lot more than the world's largest mobile phone plant.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.

But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!