India’s iPhone manufacturing push is working. The problem? Taxpayers may be paying too much for every step up the supply chain.

High-tech manufacturing in India, backed by billions of dollars in government subsidies, has attracted both cheerleaders and critics.

Optimists point to Apple Inc.’s decision to build an alternative supply chain to hedge against China. A quarter of all iPhones now roll out of factories near Chennai, employing tens of thousands. Skeptics counter that much of this manufacturing is mere final assembly — screwdriver work that adds little value. The fact that a much smaller economy such as Vietnam exports more merchandise, they argue, shows that Prime Minister Narendra Modi’s Make in India initiative remains more hype than reality.

One way to settle the debate is to examine mobile phones — arguably the biggest manufacturing success story of the Modi years — and tally what India exports and what it imports. The verdict is more nuanced than either side suggests. Indian factories are no longer mere box packers: They plug electronics into circuit boards and assemble chassis, capturing a growing share of the production process.

But those gains come at a price. For every additional dollar going to workers, taxpayers are probably still paying over $1 in subsidies. Unless localization can survive without that level of state support, India’s manufacturing success will remain vulnerable to any weakening of the political resolve behind it.

To see the opportunity and risk, take apart a phone. Printed circuit board assemblies, camera modules, touchscreens, and glass covers make up the bulk of a handset’s bill-of-materials cost. If India is genuinely moving up the value chain, exports of finished phones should outpace the imports of the components that go into them.

Measuring that progress, however, is tricky. Phone exports are easy to identify in trade data; component imports not so much. Microchips may end up in phones, electric vehicles, solar panels or smart meters. Cameras, chargers and adapters have multiple uses, too.

When former Reserve Bank of India Governor Raghuram Rajan and co-authors Rahul Chauhan and Rohit Lamba crunched the numbers in 2023, they dealt with this ambiguity by testing three situations. They assumed that 40%, 60% or 80% of imports in categories containing such dual-use components went into mobile phones. Under every scenario, India’s mobile-phone trade balance remained negative. “In sum, we certainly cannot claim the rise in exports of finished cell phones is evidence of India’s prowess in manufacturing,” they concluded.