Commentary: Apple’s iPhone factories won’t make India the next China

India is inserting itself deeper into the global electronics supply chain, but the question remains whether this progress is worth the taxpayer-funded subsidies. Apple's decision to build an alternative supply chain has attracted both supporters and skeptics. Critics argue that much of India's manufacturing is just final assembly, with little added value.

To settle the debate, analysts examine mobile phones, the biggest manufacturing success story of the Modi years. Indian factories do more than just pack boxes; they plug in components and assemble chassis. However, every additional dollar paid to workers is likely offset by US$1 in subsidies. Despite these subsidies, India's mobile-phone trade balance remains negative, indicating that the expansion of exports is not as significant as it seems.

India's expansion of exports is narrowing the gap between component imports and handset exports, but this is not enough to claim local manufacturing prowess. The expansion of exports is no longer draining as much hard currency from the country as it used to. The expansion of exports is no longer draining as much hard currency from the country as it used to.

While India has made progress in sub-assemblies, it still lacks domestic memory, processors, lenses, displays, and batteries. A better indicator of manufacturing capability deepening comes from what factories are actually doing, such as Apple's shortened production lag and the transformation of the iPhone 15 as the first Apple device built in India for Day One global sales.

However, the future of the trade balance is uncertain as chip prices rise and Indian smartphone demand shrinks. A bigger worry is the potential fiscal burden of artificial intelligence, which could lead to even higher subsidies for phone assemblers. India's plan to build a domestic semiconductor industry is ambitious, but the previous US$10 billion in subsidies only resulted in packaging chips made elsewhere.

The real test will be whether India's manufacturing success translates into long-term benefits for taxpayers.