"Make in India" pays firms crores to build here. Is it working or just subsidising assembly of Chinese parts?

The phone in your pocket was very likely put together in a plant outside Chennai or Noida. A decade ago it would have arrived in a box from China. That much has changed, and quickly.

The government’s account of the scheme is a substantial one. Across fourteen sectors it reports some ₹2 lakh crore of investment brought in, incremental production and sales of ₹18.7 lakh crore, exports above ₹8 lakh crore, and more than a million jobs. The case for trying is real too. Agriculture still supports something like 45% of India’s workers while producing about 15% of its output, services have grown without absorbing them, and every East Asian country that industrialised did so with the state’s thumb somewhere on the scale.

Look at which sectors the scheme actually chose, though. The subsidy pays firms 3% to 5% of their additional sales, it goes only to firms large enough to qualify on scale, and it covers, almost without exception, capital-intensive sectors. The scheme left out apparel and footwear, despite the fact that those industries employ people in large numbers. The scheme has focused away from the very problem it was meant to solve.

Then there is what the same government did with its other hand. Over two years it raised duties on camera modules, display and touch panels, printed circuit boards, and charger parts, pushing the cost of assembling a phone in India up about 8%, or roughly 6% of its ex-factory price, against a subsidy of only 5%. By the industry association’s own reckoning, the net benefit of Make in India came to zero. The state paid firms to build here and taxed them by more than it paid.

The state also could not hand the money over. Years in, disbursements ran at a few per cent of the promised outlay, a pace at which the payout would have taken decades to complete. The agencies set up to process claims lacked the staff to do it. By the time the government decided not to extend the scheme beyond its original sectors or push back its deadlines, firms had reached about 37% of their production targets, and the government had actually paid out roughly 8% of the money, with officials blaming the delays on red tape and bureaucratic caution. The semiconductor programme tells the same story in miniature: the government budgeted a thousand crore for a fabrication plant in one year and spent a few lakh.

When a state hands out money on these terms, the firms that collect it are the ones big enough to work the corridors and complete the forms. Fix what is actually broken, meaning company law, the tax code, and the rules on foreign capital, and every firm gains, large or small.

So is Make in India working? It bought assembly, and assembly is a real foothold; both China and Vietnam began there too. But the most valuable parts of the value chain sit with the component manufacturers who make displays, batteries, and the like. Scale, cheap parts, and stable rules are what pull component makers in. This scheme supplied none of the three, aimed itself at the wrong industries, and was undone by the government’s own customs duties.