SMART
PHONE MANUFACTURING IN INDIA – ECONOMY
News: Explained | The debate over India’s
smartphone manufacturing dreams
What's
in the news?
●
The industry that has shown the most
enthusiasm for the PLI scheme is smartphone manufacturing. And with the scheme,
mobile phone exports jumped from $300 million in FY2018 to an astounding $11
billion in FY23.
Key
takeaways:
●
However, the former RBI governor contends
that while imports of fully put-together mobile phones have come down, the
imports of mobile phone components have shot up between FY21 and FY23.
Need
for PLI Scheme:
●
Manufacturing is a key ingredient to
economic growth and also has a multiplier effect. It means that every job
created and every rupee invested in manufacturing has a positive cascading
effect on other sectors in the economy.
●
However, India has a recurring problem of
insufficient infrastructure, archaic labour laws and the lack of skilled labour
force.
●
One key set of incentives is the
production-linked incentives (PLI) scheme. The government gives money to
foreign or domestic companies that manufacture goods in India. The annual
payout is based on a percentage of revenue generated for up to five years.
●
The industry that has shown the most
enthusiasm for the scheme is smartphone manufacturing. Companies like Micromax,
Samsung, and Foxconn (which makes phones for Apple) can get up to 6% of their
incremental sales income through the PLI programme.
Significance
of the PLI in Smartphone Manufacturing:
1.
Enhance Digital Economy:
●
With PLI, India aims to reach US$300
billion worth of electronics manufacturing and US$ 120 billion in exports by
FY26, supported by the vision of a US$ 1 trillion digital economy by 2025.
●
Improvement in manufacturing and export
over the past five years ensures that India is on the right trajectory to
achieve this target.
2.
Growth in Electronic Goods Exports:
●
The major drivers of growth in this
industry are mobile phones, consumer electronics, and industrial electronics.
●
Mobile phone exports jumped from $300
million in FY2018 to an astounding $11 billion in FY23.
3.
Reduction in Imports:
●
India imported mobile phones worth $3.6
billion in FY2018, it dropped to $1.6 billion in FY23.
4.
Import Substitution:
●
The success of the PLI Scheme for
manufacturing of mobile phones led to 97% of mobile phones sold in India now
being made in India.
5.
Meeting Global Demand:
●
In the mobile phone segment, India has
become the second-largest mobile phone manufacturer globally, with the
production of handsets going up from six crore units in FY15 to 31 crore units
in FY22.
●
These numbers are expected to improve as
more domestic and global players set up and expand their bases in India.
6.
Increased Foreign Investments:
●
As of September 2022, the PLI scheme for
LSEM attracted investments of ₹4,784 crore, with a total production of
₹2,03,952 crore, while also generating 41,000 additional jobs.
7.
Job Creation:
●
In the medium-term, the scheme is expected
to bring in additional production to the tune of ₹10.69 lakh crore and generate
700,000 jobs.
8.
Improve Export Competitiveness:
●
Participation in the PLI scheme will help
many more domestic players to attain economies of scale in production through
localising.
●
Hence, this will further enhance export
competitiveness and increase India’s participation in the global value chain.
Issues:
●
Concerns
on the performance of PLI in adding value to the manufacturing
ecosystem in India. According to a World Bank Report, value addition as a
percentage of GDP of the manufacturing sector was the lowest in 10 years at the
end of 2022.
●
Imports
of parts such as printed circuit boards, semiconductors,
displays, cameras, batteries etc used in the mobile phones have increased
substantially between FY21 and FY23. This suggests that companies are mostly
assembling the product.
○
Hence, India has become more dependent on
the products used for assembling the mobile phones after the PLI Scheme.
●
Further, it also highlights the absence of localisation in key products
in smartphone manufacturing.
WAY
FORWARD:
1.
Invest in Skill Development:
●
Prioritizing skill development is crucial
to address the labour skill gap.
●
Investing in vocational training programs,
partnerships with educational institutions, and industry-led training
initiatives can equip the workforce with the necessary skills for advanced
manufacturing processes.
2.
Infrastructure Improvement:
●
Continued investment in infrastructure
development is essential to provide a strong foundation for manufacturing
growth.
●
Ensuring reliable power supply, efficient
transportation networks, and communication facilities will enhance the overall
business environment and enable seamless production processes.
3.
Research and Innovation:
●
Encouraging research and development
(R&D) activities within the manufacturing sector can lead to technological
advancements and higher value addition.
●
Collaboration between academia, research
institutions, and industry players can foster innovation in areas such as
product design, manufacturing processes, and materials, making the industry
more competitive on a global scale.
4.
Ease of Doing Business:
●
Simplifying regulatory processes and
creating a business-friendly environment is crucial for attracting both
domestic and foreign manufacturers.
●
Reducing bureaucratic hurdles,
streamlining approval procedures, and providing clear guidelines can enhance
the ease of doing business, making India a more attractive destination for
manufacturing investments.
5.
Global Supply Chain Integration:
●
Attracting international suppliers to
establish operations in India can create a comprehensive ecosystem for
manufacturing.
●
This involves fostering partnerships with
global component manufacturers and encouraging them to set up facilities in
India.
●
A well-integrated supply chain will not
only strengthen domestic manufacturing capabilities but also enhance India's
position in the global electronics industry.