NEW DELHI—India announced close to $1 billion in incentives to persuade companies to make more computers within India, hoping to shrink its trade deficit and attract manufacturers trying to diversify away from production in China.
India’s cabinet Wednesday approved a rewards program for companies that expand local production of laptops, tablets and other computers. New Delhi said it would give companies cash equal to up to 4% of the value of their sales, depending on how much they increase domestic production over the four years starting April.
“Our focus is to bring the world’s top five global champions to India and produce for the world,” Ravi Shankar Prasad, minister for electronics and information technology, told a news conference. “Before announcing the incentives, we have had discussions with key manufacturers. They are just waiting.”
Indian authorities are already discussing the new incentives with Apple Inc. which has yet to start making laptops or tablets in India, as well as HP Inc. which has a presence in India, said one government official.
A spokesman for Apple India didn’t respond to a request for comment. On Wednesday, HP didn’t respond to an email seeking comment.
‘Before announcing the incentives, we have had discussions with key manufacturers,’ said Ravi Shankar Prasad, minister for electronics and information technology. ‘They are just waiting.’
Photo: Naveen Sharma/Zuma Press
The cash giveaway is part of Prime Minister Narendra Modi’s broader plans to try to make India self-reliant in electronic goods while making it a top global supplier.
India’s economy has been hit harder than most by Covid-19. India’s gross domestic product contracted more than 15% in the six months through September, making it one of the worst-performing major economies for that period.
As the number of daily infections has plunged, it has been looking for ways to trigger further spending and growth. It has eased restrictions on some foreign investment—in insurance companies, for example—and announced tax breaks and other incentives in hopes local and international companies will spend on more facilities, creating jobs.
New Delhi is hoping to use a combination of tariffs and perks to persuade companies to make more within India. Currently, India imports more than 80% of the laptops and tablets sold in the country, most from China, according to a study report by the Indian Cellular and Electronics Association and Ernst & Young.
Its laptop imports have jumped more than 40% in the past five years to around $4.2 billion as demand for the devices has risen with incomes and millions more Indians getting on line. Despite the growing domestic demand, Indian manufacturers haven’t been able to compete on price with imports.
The new incentives from New Delhi are needed to make the domestic industry competitive, said Pankaj Mohindroo, chairman at the ICEA, a lobbying group representing the electronics sector in India. With the right government support and infrastructure, India could eventually end up producing more than 20% of the world’s cellphones, laptops and tablets, he said.
New Delhi is hoping the laptop and tablet industry can follow in the footsteps of the smartphone industry. India’s smartphone market used to be dominated by imports but is now mostly locally produced. Imports made up 78% of the market in 2014 and are now at 8%, according to Counterpoint Research, a market-analysis firm.
The shift to local smartphone production has helped trigger billions of dollars of investment and created jobs as, for example, Samsung Electronics Co. has set up its largest facility in the world outside Delhi and Foxconn Technology Group is making iPhones and other high-end smartphones near the southern city of Chennai.
The government hopes that rising labor costs in China, the geopolitical trade and security environment and the coronavirus outbreak would compel global companies to look at alternative destinations such as India to diversify their supply chains.
The new incentive program is expected to generate direct and indirect employment opportunities for nearly 180,000 people and lead to production valued at $45 billion, over 75% of which will be exported thru March 2025, according to a statement by the IT Ministry Wednesday.
Even before Covid, India was trying to attract new investment and offer its massive workforce as an alternative to China’s.
Some manufacturers have been looking for ways to reduce their dependence on China as growing trade tensions as well as the Covid-19 crisis have made them realize their supply chains were vulnerable.
“India certainly aspires to be a manufacturing hub like China,” said ICEA’s Mr. Mohindroo.
Write to Rajesh Roy at rajesh.roy@wsj.com
Corrections & Amplifications
An earlier version of this article misspelled Ernst & Young. (Corrected on Feb. 24.)
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