Ashwini Vaishnaw counters Raghuram Rajan, says local value addition in IT hardware can go up to 48%

Electronics & Information Technology Minister Ashwini Vaishnaw

Taking a potshot at former RBI governor Raghuram Rajan’s criticism of the government’s production-linked incentives (PLI) schemes for electronics manufacturing, Union Minister Ashwini Vaishnaw said that manufacturing under a new incentive scheme for computing hardware could be expected to domestically stack up to 48 percent in terms local value addition.

“There are many people who don’t want 'Make in India,' including our good friend Raghuram Rajan… Local value addition can be anywhere between 35 percent to 48 percent. Forget what Raghuram is saying, it (increase in local value addition) happens naturally,” Vaishnaw told reporters on August 30.

Rajan has raised doubts about the efficacy of the government’s PLI schemes multiple times in the past and posited that the PLI scheme for smartphones gives out more money in handouts to companies than the domestic value addition that happens in assembling the devices.

The economist also believes that manufacturing is a missed bus for India, and the country should rather focus on services exports which not only are bulkier parts of the supply chain in terms of value but also an area of strength for the country.

However, the government is of the view that focussing on manufacturing — beginning with assembling plants — is the right approach to take. This will not only create more jobs for lower-skilled workers at a faster pace but also set the country on a path of subsequently going up the value chain.

A senior official reiterated that the Rs 17,000 crore PLI scheme for IT hardware gives extra incentives to manufacturers for domestic procurement of components, rather than depending on imports.

“If a company takes all those incentives, it can go up to 45-50 percent of local value addition. If they also use semiconductors produced locally, the total local value addition for a piece of hardware can go up to 70-75 percent in the next few years,” he explained.

While an earlier IT hardware PLI scheme had instituted incentives of up to 2 percent of net sales of domestically manufactured goods, the newly approved version raises the basic incentive level to over 5 percent.

The new scheme aims to encourage the local production of smaller components used in computing devices. It introduces additional incentives of up to 3 percent for companies that purchase domestically manufactured components such as memory chips, printed circuit board assemblies, solid-state drives, chassis, power supply components, and adaptors. This initiative seeks to promote the growth of domestic manufacturing and reduce reliance on imports.

The government said on Wednesday that it had received 38 applications from companies such as Dell, Acer, Asus, Lenovo, Foxconn and Netware for the IT hardware scheme, which includes laptops, tablets, and servers.

While Apple has not yet submitted an application for the laptop and tablet production incentive scheme, the company is expected to start making such computing devices in India in the future.

"We are likely to see expected incremental production of Rs 3,35,000 crore. Expected investment incrementally will be Rs 2,430 crore. The expected direct employment is going to be 75,000," said Vaishnaw.

“Dixon will have one plant in Noida where there will be more than 20,000 people working... We had an outlay of Rs 17,000 crore for PLI 2.0 but got proposals of more than this number... It shows people consider India as a trusted, high talent partner," he added.