In today’s Finshots, we talk about India’s problem with PC and laptop imports, and the opportunity it could create.

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The Story

Let’s set aside personal computers (PCs), laptops and the opportunities we mentioned in the title for a moment, and talk about two fictional characters we’ll call Mr. Businessman and Miss Investor.

Mr. Businessman runs an IT hardware manufacturing company in India. Back in 2020, the Indian government announced the Production-Linked Incentive (PLI) scheme for the electronics manufacturing sector (EMS), an industry aimed at making products like smartphones, laptops and PCs. And for Mr. Businessman, this scheme was a game-changer. It offered financial incentives and tax benefits to companies that hit certain sales and investment targets, rewarding them for producing in India instead of relying on imports.

India’s electronics market was booming at the time. Consumer demand for smartphones, laptops and PCs was growing year after year.

Cut to today, India has even become the world’s second-largest 5G smartphone market by volume and the demand for laptops and PCs has surged too.

The only catch? Well, most of this demand was still met by imports, with India getting around 60% of its IT hardware from China.¹ But as companies worldwide began looking for alternatives under the “China Plus One” strategy, India had a real shot at becoming the next big manufacturing hub.

All this helped Mr. Businessman’s company grow and rake in steady sales each year.

But running a manufacturing business in India has its hurdles. For one, skilled workers are hard to find, and the investment costs are sky-high. This high barrier means fewer players in the game, which gives those who could make it an edge. But on the flip side, fewer players and big contracts in the EMS industry often mean tight profit margins. Because large contracts rarely allowed generous profit-sharing, which kept Mr. Businessman’s profits fairly slim. Yet, the steady growth in sales kept him optimistic.

What was even more optimistic was the government’s new plan to ramp up local production of IT hardware products. After successfully boosting local smartphone production from 20% to over 95% in the past decade, the government was now extending its focus to laptops and PCs.

In August 2023, the Directorate General of Foreign Trade (DGFT) announced import restrictions on these devices. The idea? To boost local manufacturing and curb cheap imports.

But things didn’t go as smoothly as they did with smartphones. Global giants like Apple, Dell and HP pushed back, arguing that it would disrupt supply chains. Even the US Senate raised concerns. So, the government hit pause and delayed restrictions until December (2024) with a simple online registration system.

But this was a bit too lenient as almost all import authorisations were approved, which meant that it barely reduced imports. In fact, hardware imports of PCs and laptops barely dropped in FY24, slipping just 3% — from $8.7 billion in FY23 to $8.4 billion.¹

But now, there’s talk of a stricter import ban from January 2025.² This time, the Ministry of Electronics and Information Technology (MeitY) is working on a new import authorisation system that would require prior approvals for imports. The government is even considering minimum quality standards for laptops, notebooks and tablets to filter out low-quality devices.

And this time, the goal isn’t just about reducing imports. The government wants big tech players like Apple to invest directly in Indian manufacturing. And for Mr. Businessman, this could be huge. Because more local production means more business for his company, and he might finally have a shot at competing with imports, especially those coming from China.

But hold on, it’s not all smooth sailing yet, because here’s the thing.

First, we have supply chain gaps. India’s hardware ecosystem still depends on imports for critical parts like semiconductors and displays. And without these, local production will always have a foreign dependency.

Building world-class factories isn’t cheap either. For global players to invest heavily, they need policy stability and long-term incentives.

And most importantly, abrupt policy changes can be tough for businesses. If the January ban isn’t gradual and well coordinated and faces the same resistance and luck as what the last authorisation system saw, then it could discourage companies from scaling up manufacturing here.

So yeah, there’s a problem with India’s PC and laptop market.

Much depends on how this all goes come January. And the above measure could be a first step to bring us closer to a time where we see lesser Chinese hardware flooding Indian markets.

Now, let’s not forget and quickly talk about Miss Investor.

While Mr. Businessman was busy building a manufacturing plant, Miss Investor took a different route. She invested in Indian contract manufacturing stocks like Dixon Technologies. And she’s grateful she did so because the stock has been on a tear this year rising over 120%.

As the government announced the PLI scheme aimed at IT hardware manufacturing, it’s been merry for these IT contract manufacturing businesses and their stocks.

And now if the January ban goes through, these companies could land even more contracts. Think about it. Fewer imports mean more business for local players, larger contracts and bigger opportunities. Revenue could jump too, making Miss Investor’s bet on EMS stocks a potentially profitable bet.

Just look at Dixon Technologies, India’s largest homegrown EMS player. Its IT hardware revenues hit around ₹140 crores in FY24, and with the PLI scheme, its aiming to grow this by a massive 34,000% cumulatively over the next six years.³

So yeah, it’s safe to say that the Indian IT hardware manufacturing industry is on the brink of something big.

Sure, there’s a need for better import and manufacturing regulating policies, just as most other countries have done. But there’s also an opportunity lurking amidst this chaos.

If the January ban takes effect, Mr. Businessman and Miss Investor might just find themselves in an enviable position. And maybe, we’ll see “Made in India” laptops and PCs hitting the world’s shelves soon?

Until then…

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Story Sources: The Hindu Businessline [1]; Business Standard [2]; Dixon Technologies [3]

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