How can the Indian Smartphone Manufacturing Industry be boosted
The issue:
- Everything started when Mr. Rajan and two other economists wrote a short discussion paper in which they claimed that the programme wasn’t really moving India towards becoming a manufacturing powerhouse capable of supporting itself.
- Instead, the government is constructing a system of low-paying assembly jobs that will remain mostly reliant on imports with the help of tax monies.
Using the PLI programme:
- About five years ago, the Indian government decided to encourage more companies to make items in India.
- The multiplier impact, which economists refer to as every job created and every rupee invested in manufacturing, has a beneficial cascading effect on other economic sectors. Economic expansion is fundamentally dependent on manufacturing.
- The problem was that many industries were hesitant to set up shop in the country.
- India has a low level of skill in its workforce, outdated employment laws, and weak infrastructure.
- The government used and still uses a carrot-and-stick approach to problem-solving. Increasing import duties is the “stick,” making it more expensive for companies to purchase items from abroad and sell them in India. The ‘carrot’ is to provide financial support and incentives.
- An important set of incentives is the production-linked incentives (PLI) programme. Domestic and foreign companies who manufacture goods here are given financial support by the local government. A part of the income generated over a five-year period is used to calculate the annual dividend.
The industry that has embraced the idea with the most enthusiasm is the production of cellphones:
- Businesses like Micromax, Samsung, and Foxconn (which makes phones for Apple) can receive up to 6% of their incremental sales revenues through the PLI scheme.
- In addition, the plan states that exports of mobile phones rose sharply, from $300 million in FY2018 to an astounding $11 billion in FY23. In addition, India’s imports of mobile phones fell from $3.6 billion in FY2018 to $1.6 billion in FY23.
The problems:
- The export surge hides more than it reveals. Between FY21 and FY23, imports of mobile phone components such printed circuit boards, cameras, and display screens surged while imports of fully completed mobile phones fell.
- Coincidentally, mobile phone exports rose sharply each of these two years. This is essential because India does not produce conventional mobile phones.
- As a result, the majority of the components would be produced locally, and their supply chain would also move to India.
- This is essential since low-level assembly work does not generate high-paying employment and does not have the same economic multiplier impact as potential from manufacturing.
Conclusion:
- The key point of contention is whether the PLI plan can make India a hub for manufacturing and supply that enhances the production process and creates stable jobs.
