Why India’s mobile phone story is a major manufacturing success!

Why India’s mobile phone story is a major manufacturing success!

By Rajesh Kumar Singh and Kumar V Pratap

 

Several recent newspaper articles have tried to create a narrative that the role of Production Linked Incentive (PLI) Scheme in promoting mobile phones exports is questionable on account of low value addition in India.

The key elements of such criticism include the following:- only due to imposition of higher tariffs the net imports of mobiles have turned positive, that the incentive payment in PLI scheme may outweigh the value added in India, that India became import dependent since the PLI scheme was announced and that there is a need to reassess whether jobs have been created under the PLI schemes and the associated cost for such jobs.  These points are largely incorrect as is detailed below:

Tariff policy changes are part of a deliberate strategy to increase domestic capabilities in manufacturing and exports. Compared to 2015, 99.2% of the mobile handsets now being used in India are Made in India.

The PLI incentives are not even 6 % (will come down in stages to less than 2%), and it is only on the incremental production. While the beneficiaries of the PLI Scheme constituted only 20 percent by market share, they accounted for 82% of the mobile phone exports in FY 2022-23. Analysis shows that domestic value addition in mobiles is between 14-25 percent depending upon the model and complexity. Robust development in subassemblies and supply chains for Chargers, Battery Packs, Headsets, Mechanics, Camera Module, Display assembly is being seen. New markets have been added for exports including Western Europe, Americas and developed Asia, besides the shifting of global supply chains to India. Green shoots in the component ecosystem are also visible wherein large Indian companies like Tatas have entered and thus the externalities generated by such a policy intervention are significant.

We need to consider what would have happened to imports of mobiles and its components in the absence of the PLI Scheme and the time period for supply chains to be established as evident from the experience of other countries. China has built a USD 1.3 trillion electronics industry over 25 years but still lacks the capacity to manufacture key smartphone components such as semiconductors, memory and OLED displays, which are 45 percent of its value. China’s import of electronics was ~USD 650 billion in 2022. Vietnam, after 15 years, has a USD 140 billion electronics industry with an 18 percent value addition. The experiences of both countries highlight the importance of scale, particularly in exports, for increasing domestic value addition.  Many of the critical reports give a static picture of a policy intervention while the perspective should be dynamic.

For fostering a robust electronics manufacturing ecosystem, one must appreciate that various elements of the production process are at different stages of localization. While the initial focus has been on attracting large-scale mobile phone assembly to India, the next phase is geared towards deepening the manufacturing value chain with  localization of components. A nuanced understanding of this progressive transition seems to be missing in most of the critical reports.

Government of India has adopted an ecosystem approach to position India as a global hub for Electronics System Design and Manufacturing (ESDM). In 2014-15, electronics production was USD 37 billion with minimal value addition and high import dependency. Over the last 9 years, India has made significant progress in electronics production which has grown nearly three-fold to USD 101 billion in 2022-23 (industry estimates), exports have increased over four-fold to USD 23 billion, and value addition has increased to approximately 23%. India’s share in global electronics manufacturing has risen from 1.3 percent in 2012 to 3.75 percent in FY 2021-22.

Consequent to the launch of the PLI scheme for electronics, India emerged as the second largest manufacturer of mobile phones in the world in volume terms from 60 million mobile phones in FY 2014-15 to about 320 million mobile phones in FY 2021-22, and from making 3% of the world’s Mobile handsets in 2014, to a projected 19% this year. In value, the production of mobile phones has grown from Rs.190 billion in FY 2014-15 to Rs.3.5 trillion in FY 2022-23. Of the USD 101 billion total electronics production, smartphones constitute USD 44 billion, including USD 11.1 billion in exports. There is sufficient evidence to establish that mobile manufacturing in India is becoming deeper as well as broader, with added domestic value addition, employment and incomes.

The PLI Scheme for LSEM has attracted investment of Rs.65.62 billion till end-FY 2022-23, which has led to total production of Rs.2.84 trillion, including exports of Rs.1.29 trillion and generated direct employment of over 100,000 and indirect employment of about 2,50,000. Women employment is 70 percent of all new jobs created, which would help address gender balance in formal sector employment in India. Since 2014, more than 1 million jobs have been added in the sector.

India scored a coup with the decision by Apple to significantly expand iPhone production in India, including manufacturing of its most advanced models. Projections are that a quarter of all Apple iPhones will be made in India by 2025.

To conclude, the success of PLI schemes can be seen through its contributions in terms of employment generation, increased FDI in manufacturing, increased exports and diversification of the exports basket as well as significant value addition and the creation of a growing local value chain in many of the PLI products, especially mobiles.

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