Foxconn, the multinational Taiwanese electronics manufacturer, announced Saturday that it will invest $5 billion in setting up a new facility for semiconductor and thin-film-transistor (TFT) manufacturing in the Indian state of Maharashtra. Best known for its central role in the manufacturing of many popular global consumer electronics, notably Apple’s popular iPhones and iPads, the Sony Playstation 4, and Microsoft’s Xbox One, Foxconn is the largest electronics contractor manufacturer worldwide. The announcement on Saturday that it will set up a factory in India will be a boon for the current Indian government’s “Make in India” bid, which strives to bring foreign investment into the country to improve India’s manufacturing base.
Foxconn and the Maharashtra state government signed a memorandum of understanding on Saturday to formalize cooperation. “We have been looking for other places, but initially the focus is [on] Maharashtra. The unit will have manufacturing facility as well as [a research and development] unit,” Foxconn founder Terry Gou told the press after signing the MoU. The MoU, according to Foxconn, “outlines significant investments that Foxconn intends to make in the next five years.” Overall, Foxconn’s operations in Maharashtra are expected to create employment for approximately 50,000 Indian workers.
The Indian government, led by Prime Minister Narendra Modi, has set a goal of having manufacturing comprise 25 percent of the country’s gross domestic product by 2022. According to the World Bank, manufacturing comprised 15 percent of India’s GDP in the late 1990s and today stands at 17 percent. Meanwhile, fast-growing states in East and Southeast Asia have historically had manufacture comprise a high share of their GDP. Over 30 percent of Chinese GDP since the late 1990s has been a result of the country’s massive manufacturing base. (Globally, manufacturing accounts for 16 percent of GDP.)
For growing economies, it’s not only the share-of-GDP from manufacturing that matters–the kind of manufacturing matters just as much. As economic research has shown, the path to prosperity for many states is directly related to their ability to manufacture a diverse range of goods. For many states, the jump from manufacturing non-complex goods (i.e. textiles, food products, and service inputs) to more complex goods, including machinery, automobiles, and semiconductors for export, is associated with increased prosperity. Particularly in Asia, states like Taiwan, Japan, and South Korea saw “unprecedented” economic growth with a focus on manufacturing these sorts of goods.
It’s interesting also to note that this agreement for Foxconn to set up shop in India occurred at the state–not national–government level. During his prime ministerial campaign, Modi emphasized that his government would encourage precisely this sort of state- and local-government-led approach to bringing in foreign investment into India–an approach informed by Modi’s own experience leading the state of Gujarat for over a decade. Devendra Fadnavis, the chief minister of Maharashtra, incidentally the first chief minister in that state to belong to the ruling Bharatiya Janata Party, has been in talks with Gou since March 2015. His success may inspire other Indian state governments to pursue similar agreements, with Foxconn and other firms.