India Capital Growth (IGC ) fund manager Gaurav Narain explains how 80% of India’s mobile phones are now made in the country, an example of how the government has incentivised manufacturing.

This is the third of our excerpts from the virtual event Citywire held this month with Narain and Ocean Dial Asset Management.

Watch the previous excerpts on India Stack: The secret of India’s tech-led growth and Why India has overtaken the UK.

If those whet your appetite, you can watch the one-hour Big Broadcast of the whole event. 

Can’t watch now? Read the transcript

Gaurav Narain:

Then the government said we have to kick-start the growth, and the corporate sector was still in a very uncertain mode. Since then, what they’ve done is encourage the corporate sector itself. Now they’re coming up with a lot of policy measures, which are giving incentives to the corporate sector to invest. They’ve come out with a scheme called the Production Linked Incentive Scheme, which came out about two years back, where they identified 14 different industries and within that subsector where they felt India’s a very large base. Where we’re importing a lot of products or we have a very strong manufacturing base, which can be used for an export base.

So, for example, one of the areas they chose was cellphones, where we have an annual market of almost 160 million smart phones: 80% used to be imported. So they came up with a policy measure that said if you invest X amount each year for the next five years and have incremental revenues of a specific amount, we’ll give you a 5-7% subsidy on the revenues. You won’t believe it, in these two years, you’ve got 10 such companies that have taken advantage of it, all three of the Apple manufacturers have set up shop. Apple itself, last month we saw about a billion dollars of iPhones exported. Their own target is that 25% of the production would be in India. This is really going on in multiple areas, also. It’s in textiles, it’s in chemicals. Very, very specific identified areas where India can become a big base. You’re seeing that actually starting the capex in the private sector also.

I think from a growth perspective, a lot of measures are already in place and we can also see that in the numbers. I mentioned the banking system, but if you see the credit growth in the banking system today, it’s running at 16%. It’s actually at a seven-year high. If you see the tax collection by the government, it’s possibly the first time we’ve heard the government tax collection is running way ahead of their own forecasts. For both direct and indirect taxes, growth is almost at 20%. It’s really reflecting the pickup in the momentum of the economy that you’re seeing. It’s not just a short-term phenomenon.

On top of that, I come back to demographics. What you see in India is that today you have a working population of over 500 million people. There are about 10 million people coming into the workforce every year. You’re talking about 100 million people being added over the next decade. India’s one country where you’re not having an ageing population. I think all the way to 2070, you don’t really have a people issue, and that’s going to drive your consumption. I’d like to add, our per-capita income is just $2,300. It’s one-sixth of China’s. The potential, once you see the growth pick-up on the economy, you’re going to really have a big inflection on the consumption side as well.