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Demonetisation forces Indian manufacturers to slash production

Slowing sales of mobile devices in the wake of a government initiative have led to Indian manufacturers cutting both working hours and output.

Prime Minister Narendra Modi’s ‘demonetisation’ strategy to remove the high-value INR500 and INR1000 (<$15) notes from circulation has resulted in a sales drop of 50%, prompting several Indian manufacturers – along with Taiwan’s Foxconn – to wind down operations across their sites, leaving workers idle.

Reportedly, Foxconn – which is the largest electronics manufacturer in the world, which makes devices for Apple along with major Chinese firms such as Gionee, Oppo and Xiaomi – has given 8000 of its factory workers two weeks of paid leave as it halves its output.

Indian manufacturers including Intex, Karbonn, Lava and Micromax are planning to cut between 10% and 40% of their work forces following the demonetisation initiative. Lava has shut down a plant which provides jobs to 5000 workers for at least a week, while Micromax has also reduced production at sites in Rudrapur and Telangana.

Modi’s demonetisation strategy was implemented on November 8th within a day as a measure to combat fraud. However, the initiative has attracted criticism for removing trillions of rupees from circulation, creating a cash shortage and instigating a slump in consumer demand – particularly in the mobile phone industry, as most devices are purchased with cash.

India’s smartphone user base is on course to reach half a billion by 2021, according to Counterpoint Research. Earlier this year it overtook the US to become the world’s second largest smartphone market by user numbers, and it is one of the fastest-growing smartphone markets globally.

Its manufacturing sector has been boosted by the government’s “Make in India” campaign, which has seen local production of mobile phones rise from 14% in 2014 to 67% this year. In just 18 months, 12 plants for the manufacture of mobile components and accessories have opened in India, along with 40 assembly facilities.

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