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How India can become a Smartphone manufacturing hub? PLI Scheme for Smartphone

How India can become a Smartphone manufacturing hub? PLI Scheme for Smartphone

Relevance:

  • GS 3 || Science & Technology || Information and Communication Technology || Mobiles

Why in the news?

As the nation’s telecom sector stands poised to transition from 4G to 5G soon, the PLI scheme offers the right impetus by aiming to create a vibrant telecom manufacturing ecosystem.

Background:

  • The country’s communications industry, among others, was badly damaged by the coronavirus epidemic that disrupted worldwide supply chains in 2020.
  • Geopolitical flashpoints worsened continuous disruptions even as the pandemic raged throughout the world.

Mobile phone industry in India:

  • Among others, the mobile phone industry in India is dominated by Chinese manufacturers. The huge demand for budget phones has made India an arable market for the same.
  • So far, India’s mobile phone imports were always higher than its exports.
  • In the financial year 2019-20, India exported 41.5 million phones and imported 5.6 million phonesa net export of 36 million units.

  • High export of mobile phones doesn’t mean they are being produced entirely here.
  • According to the India Cellular and Electronics Association, mobile phone manufacturing units in the country have grown from just two in 2014 to 268 in 2018.
  • Further data shows that, more than being made in India, cell phones are mostly assembled in India

The assembling hub- India:

  • In 2017, the government launched a phased manufacturing programme under which it incentivises local sourcing of parts.
  • Under this, importing products such as chargers, microphones, cameras (for phones), etc. would invite custom duties, but not for the parts required to manufacture them.
  • Consequently, importing a full mobile phone would be costlier than importing its parts and assembling them in India.

  • Although it has indeed increased local value addition in mobile phone manufacturing in India from 6% in 2016 to 17% in 2018.
  • Over 300 components and sub-components are required to manufacture one mobile

What about Made In India?

  • With the same policy, a 100% “Made in India” phone would be “virtually impossible” in such a scenario.
  • It would take years of policy reforms for anything beyond 50% of value addition.
  • It took China roughly two decades to clock a value addition of over 60 per cent.
  • Going forward, policy reforms will be helpful, but they will take time. We cannot continue hiking custom duties.
  • Recent steps of performance-linked incentives and reducing corporate tax rates will invite bigger companies to invest and manufacture in India.
  • Once the big players come in, local small manufacturers will also get a boost.

 What is the PLI scheme?

  • On April 1, the IT ministry announced the PLI program as part of the National Policy on Electronics.
  • On the one hand, the program would encourage indigenous mobile phone manufacturers to grow their operations and presence in India, while simultaneously attracting large international investment.
  • Electronics businesses that make mobile phones and other electronic components would receive a 4-6 percent bonus.
  • Companies that produce mobile phones that sell for Rs 15,000 or more would receive a 6% incentive on additional sales of all such mobile phones made in India, according to the program.
  • The incentive for firms owned by Indian nationals that manufacture such mobile phones has been set at Rs 200 crore for the next four years.

PLI for smartphone as an Initiative:

  • The initiative is open to any electronic manufacturing businesses that are either Indian or have a registered unit in India.
  • These businesses can either establish a new unit or seek incentives for existing operations in one or more Indian cities.
  • The incentive will cover any additional spending on plant, machinery, equipment, research and development, and technology transfer for the manufacturing of mobile phones and associated electronic products.
  • Companies’ investments in land and buildings for the project, on the other hand, will not be considered for any incentives or used to assess the project’s success.

Production Linked Incentive Scheme (PLI)- Large-Scale Electronics Manufacturing :

  • The plan calls for a financial incentive to increase local production and attract major investments in the electronics value chain, which includes electronic components and semiconductor packaging.
  • Electronic manufacturing businesses would be eligible for a 4–6% incentive on increased sales (over base year) of items made in India and covered by target categories during the following 5 years under the plan.
  • Only mobile phones and specific electrical components will be covered by the plan.
  • According to the government, the PLI plan would increase domestic value addition for mobile phones from 20-25 percent to 35-40 percent by 2025, resulting in an extra 8 lakh employment, both direct and indirect.

Promotion of Electronic Component Manufacturing Scheme:

  • The Union Cabinet has authorized a financial incentive of 25% of capital expenditure for the manufacture of items that make up the supply chain of an electronic product under the program.
  • The SPECS for producing electronics components and semiconductors has a budget of Rs 3,285 crore distributed over an eight-year period.
  • According to the government, the drive to manufacture electronic components and chips would result in the creation of about 6 lakh direct and indirect employment.

Recent policy reforms:

  • Incentivising import of mobile phone parts has had another effect.
  • Last year that local value addition might have increased to 17 per cent in 2018 and saved us $2.5 billion of forex, but this has also increased imports of mobile components to $13.5 billion since India does not manufacture many high-value parts.
  • “Over 300 components and sub-components are required to manufacture one mobile phone. Sourcing them in one location is extremely difficult because we do not depend on China for every part.
  • The True Value Addition in India is currently at 12 per cent and the government’s phased manufacturing programme has been helpful. We have made improvements in low-hanging components such as chargers, surface-mount technology, packaging, camera modules, etc,”
  • The Credit Suisse research said India produced 300 million units of mobile phones in FY19, which is 20 percent of the global production. However, most of these were low-end phones.
  • The report also says that India produced 40 per cent of global low-end phones.

Conclusion:

If targets set by the Indian government are met, by FY24, additional handset manufacturing of nearly 10% each of the global market by value and volume could move to India. If the value-add targets are met as well, India’s trade deficit would improve by US$24 bn (0.7% of then GDP). However, these plans may see some delays the coronavirus could push out timelines, as would perception of policy uncertainty (including at the state level) among global manufacturers. Whether China would be able to reap benefits from these policies would also depend on the times ahead. The government has already put scrutiny over investments from China that has irked Chinese investors.

Mains oriented question:

It have been noticed that in between the India-China border tussle and Boycott China notion in India has made impact in manufacturing sector of India, the mobile phone industry in India is dominated by Chinese manufacturers. The huge demand for budget phones has made India an arable market for the same. Comment. (250 words)