India's next main export goods: EVs and electronics?

The motor industry in India is very attractive to all domestic and global players as it combines a large internal market (though most of it of low price value) with a manufacturing that benefits from the low-cost base that India offers but at the same time does not require what seems to be India’s Achilles’ heel, that is, skilled manufacturing labor. These advantages combine with the government’s strong push for electric vehicles, with all kinds of incentives for consumers and companies. And they also combine with the high tariffs applied on imported vehicles to make the Indian car market very attractive but only if you have local manufacturing. So you have Tesla eyeing a significant direct investment in the coming years, although the conversations with the government in the past months have gone up and down in a battle for subsidies. You also have other EV manufacturers (the Vietnamese VinFast, for example) similarly looking to set up shop. And you have the main local manufacturers (Maruti Suzuki, Tata Motors, Mahindra & Mahindra, etc.) giving a strong look at the European EV markets, especially after the Chinese EV companies just got slapped with a host of EU tariffs.

Then you have the two-wheeler EV market, with incumbents like Hero Corp or TVS Motor set to attack European markets with low-cost scooters, and mobility startups like Ola getting into the domestic game with new models. If the export model catches on, European incumbents will likely also think about establishing/increasing production in India to make their costs more competitive. Piaggio, for instance, could crank up its existing production in India to increase competitiveness vis a vis the new entrants.

All in all, a fast-moving situation that contains a lot of promise.

The other Indian industry that wants to be global is the electronic goods industry, estimated to grow above 40% annual rate in the coming years. Right now, that industry is focused on smartphone assembly, consumer wearables (earphones, etc.), IT hardware and electronic components. Tata seems poised to take the local lead, planning huge investments in smartphone manufacturing (it recently acquired the iPhone manufacturer Wistro) and semiconductors. Apple is assembling 14% of its total iPhones in India. And Apple has “brought” most of its component suppliers (Foxconn, Pegatron, Corning and Ryprus) to Indian shores. First, to supply the easier parts of the iPhone and then, with time, develop capability to supply the more difficult ones (like touchscreens or camera lenses). Once this ecosystem is in place and the supply of engineers and other workers stabilizes, we might see the emergence of local manufacturers that leverage this ecosystem of components and capabilities. For instance, India has a number of large startups in electronic consumer goods (boAt, Boult, Noise, Fastrack, etc.) that are eager to localize their initially outsourced production and thus would be interested in developing that ecosystem further. Right now, they are still too dependent on importing components, which carries heavy tariffs and makes them less competitive.

Again, the growth formula in the Indian electronics manufacturing industry seems to be 1) a large domestic market + 2) low-cost manufacturing + 3) government subsidies + 4) import tariffs, with availability of labor as the major constraint. Geopolitical considerations involving China -both in its relationship with India and in its conflicts with Western economies- have opened a window of opportunity for India to insert itself in the electronic manufacturing global value chains, a window that might not be this open forever.