The debate over India’s smartphone manufacturing dreams

Subject :Economy

Section: External sector

Context:

Over the last few months, former RBI governor Raghuram Rajan and the Minister of State for Electronics Rajeev Chandrasekhar have sparred over how well a Central government scheme to boost electronics manufacturing has been faring.

Details:

Mr. Rajan, along with two other economists, released a brief discussion paper arguing that the programme isn’t really pushing India towards becoming a self-sufficient manufacturing powerhouse. Instead, the government is using taxpayer money to create an ecosystem of low-level assembly jobs that will still depend heavily on imports.

What is the PLI scheme?

Production Linked Incentive, or PLI, scheme of the Government of India is a form of performance-linked incentive to give companies incentives on incremental sales from products manufactured in domestic units.
It is aimed at boosting the manufacturing sector and to reduce imports.
Objective of these schemes entail Make in India, incentivising foreign manufacturers to start production in India and incentivise domestic manufacturers to expand their production and exports.
The Government of India (GoI) has introduced Rs 1.97 lakh cr (US$ 28 b) PLI schemes for 14 sectors.
The 14 sectors are:

Mobile Manufacturing and Specified Electronic Components,
Critical Key Starting Materials/Drug Intermediaries & Active Pharmaceutical Ingredients,
Manufacturing of Medical Devices
Automobiles and Auto Components,
Pharmaceuticals Drugs,
Specialty Steel,
Telecom & Networking Products,
Electronic/Technology Products,
White Goods (ACs and LEDs),
Food Products,
Textile Products: MMF segment and technical textiles,
High efficiency solar PV modules,
Advanced Chemistry Cell (ACC) Battery, and
Drones and Drone Components.

Advantage of PLI scheme:
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.
And with the scheme, mobile phone exports jumped from $300 million in FY2018 to an astounding $11 billion in FY23.
And while India imported mobile phones worth $3.6 billion in FY2018,it dropped to $1.6 billion in FY23.

What was Mr. Rajan arguing?

While imports of fully put-together mobile phones have come down, the imports of mobile phone components — including display screens, cameras, batteries, printed circuit boards — shot up between FY21 and FY23.
In effect the companies are importing all of the necessary parts and assembling them in India to create a ‘Made in India’ product.
This is important as low-level assembly work doesn’t produce well-paying jobs and doesn’t nearly have anywhere the same multiplier effect that actual manufacturing might provide.

What the Minister has to say?

All imports of screens, batteries, etc. are not used to make mobile phones, some of them are used also for computer monitors, DSLR cameras, electric vehicles etc.
Not all mobile phone production in India is supported by the PLI scheme, only around 22% so far.

Who is right?

Even if only 60% of screens, batteries, etc. are used to make mobile phones, the final import tally would still beat the final export tally.
Mr. Rajan believes that without proof of PLI’s success, there is an opportunity cost.
- After all, every rupee spent in PLI payments is money that could have gone into improving, say, the education system, an investment that would also help the Indian economy.