India’s Production Linked Incentive (PLI) Scheme is expected to bring windfall gains for the local mobile manufacturing Industry and make India a mobile manufacturing hub. The scheme is part of the National Policy on Electronics and was notified on 1 April 2020. It aims to incentivise mobile and electronics components manufacturers who meet certain sales threshold.
Under this scheme, the companies will be given 4-6 per cent incentive for five years on incremental sales of all such mobiles that are made in India over the base year 2019-20.The incentives are applicable from 1 August.
Under this scheme, companies that make handsets which sell for Rs 15,000 or more will get an incentive of up to 6 per cent on incremental sales of all such mobile phones made in India. For Indian nationals who own companies which make mobile phones, the incentive has been kept at Rs 20 million for the next four years.
The government has approved names of 16 global and domestic mobile phone and electronic component makers who will be eligible for incentives under the PLI scheme. These companies include major market players Samsung, Foxconn and Bhagwati Products which is the maker of Micromax phones. The other eligible overseas mobile phone manufacturers are Rising Star, Wistron and Pegatron. Barring Samsung, all other companies are contract manufacturers for Apple – the iPhone maker.
Apple and Samsung together account for a lion share of global revenue for mobile phones. Some reports suggest that this could be as high as 60 per cent of the total global revenues.
The Indian companies to have got the government approval for PLI scheme include Lava, Bhagwati Products, PadgetElectronics, UTL Neolyncs and Optiemus Electronics.
The Ministry of Electronics and Information Technology(MeitY) has also approved applications of six companies under the specified electronic components segment. These are AT&S, Ascent Circuits, Visicon, Walsin, Sahasra and Neolync.
As has been echoed by the Minister of Electronics and Information Technology, Ravi Shankar Prasad, the government received tremendous response from the companies who wanted to get a pie of this scheme. India offers a huge market for mobile phones and the interest it has generated from local and foreign companies augurs well for the country.
India’s share in global electronic sales was a paltry 0.3 per cent or close to USD 8 billion out of the 2.74 trillion exports market in 2019 according to a media report. The same report suggested that country’s share in global electronics export was 0.1 per cent in 1995. This means that this is the growth shown by the sector in almost two-and-half decades, which at best could be described as painfully tardy. These figures were revealed by WTC citing an United Nations Conference on Trade and Development (Unctad) data.
Hong Kong has more than doubled its market share from 5.4 to 13 per cent during this time while Vietnam had no exports in 1995 and it accounts for 3 per cent.
This is also an indication of how successive governments have overlooked this sector, when the telecom as a sector has grown tremendously in the country.
Objectives
As per the government estimates, this scheme is expected to result in production worth Rs 10.5 trillion and more than 60per cent will be contributed by exports. The scheme will bring additional investment to the tune of Rs 11,000 crore that will help in creating capacities and make the Indian mobile manufacturing segment competitive. The government also expects to create around 300,000 direct jobs from this.
Prospects and Competition
India not just has to satiate the domestic demand for low priced electronic goods but also must become an alternative of Chinese exports. It is a lofty goal as the dragon accounts for over 26 per cent of the global electronics exports.
China is a distant dream as there are other much worthy opponents in the form of Hong Kong and South Korea capturing 13 per cent and 6.8 per cent market share respectively. Other major exporters include US, Germany and Japan at 6.6 per cent, 4.8 per cent and 3.2 per cent, respectively, this report said quoting the same Unctad data.
Even Malaysia and Vietnam at 3 per cent and Thailand at 2 per cent fare better than Indian in terms of global sales.
This means that India has a lot of distance to cover.
Challenges:
The 16 companies selected for the PLI scheme is a positive step to start with and was long overdue. But there is a lot to be desired here. A lot in terms of the right ecosystem that needs to be built to make the Indian industry competitive and flourishing.
While the launch of the PLI scheme has been delayed by more than two months, the government has indicated that it would stick to the targets and timelines. The scheme was originally scheduled for a 1 August start. Media reports suggest that some manufacturers have voiced their concerns to the Ministry, urging it to reconsider the targets.
A lot of work is to be done in terms of raising the capital, building capacities and getting the orders. The companies will have to set up base by March 2021 and start production.
One of the things that should be done is to bring medium and small-scale industries under this fold. The MSMEs need to be incentivised as they can further scale up the exports. This will also help them to sustain themselves amid high offshore and domestic competition.
The industry bodies have been advocating for reducing minimum investment limit under the PLI scheme to Rs 200million from Rs 1 billion, so that MSMEs could also participate. The downstream industry also needs to be encouraged which means that the incentives need to percolate down at the stage of raw material.
The pandemic has already been the biggest disruptor and anything from here would not be an easy task. While the companies are expected to meet steep targets, the government must also be realistic of the targets as the objective of this scheme is to develop India as a manufacturing hub with participation of domestic players.
What the companies have been expected of is to hit the ground running.