PLI Scheme to Manufacture India’s Mobile Phone Industry

Source: The post India’s mobile phone industry has been created, based on the article “Mobile PLI: Only the long-game matters” published in “Business standard” on 8th February 2024.

UPSC Syllabus Topic: GS paper 3 – economy-changes in industrial policy and their effects on industrial growth.

News: This article discusses the growth of India’s mobile phone industry due to government policies like tax cuts and incentives. It covers the industry’s challenges, dependence on imports, and possible future scenarios, including developing local manufacturing and becoming a global player. PLI Scheme to Manufacture India’s Mobile Phone Industry

What is the current state of India’s mobile phone industry?

1. India’s mobile phone sector has grown significantly, with exports nearly doubling from $7.2 billion in 2022 to $14 billion in 2023.
2. One in four phones produced in India is now exported.
3. The government’s reduction of import tariffs on certain mobile phone components from 15% to 10% aims to further bolster this growth.

How have government policies impacted India’s mobile phone industry?

Three key government decisions have boosted the industry:

1. A 20% import tax on mobile phones to reduce imports.
2. Lower import taxes on components, ranging from 0-10%, created tax arbitrage, attracting manufacturers to produce locally.
3. The introduction of the Production Linked Incentive (PLI) scheme, offering 4-6% cash incentives based on incremental production, further stimulated the industry.

What are the challenges in India’s mobile phone industry?

High Production but Low Investment: The industry has produced mobile phones valued at ₹4.12 trillion with a relatively low investment of only ₹7,400 crore. This indicates that for every rupee invested, ₹55 is generated in production, suggesting a focus on assembly rather than comprehensive manufacturing.

Reliance on Incentives: There’s a concern about the industry’s reliance on government incentives like the PLI scheme. Many manufacturers might reduce or stop production once these incentives are withdrawn, indicating a lack of long-term sustainability.

Dependency on Imported Components: The industry heavily depends on importing high-end components, which is a significant vulnerability.

Past Instances of Disruption: Examples like Nokia, which faced major tax disputes and labor issues leading to the closure of its plant, show the potential for regulatory and labor challenges within the industry.

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What are The Potential Growth Scenarios of India’s Mobile Phone Industry?

Continuation of Current Trends: India might keep extending incentives like the PLI scheme and further reduce import duties. But this would uphold high production and export figures but wouldn’t greatly advance manufacturing depth or technological prowess.

Potential Disruption: There’s a risk that major mobile phone companies could cease their operations in India if they find more attractive incentives elsewhere.  A crucial factor that could disrupt the industry is the potential compliance with a World Trade Organization (WTO) ruling that may require India to reduce its mobile phone tariffs from 20% to zero, challenging the existing tax benefits that have been boosting local manufacturing. Additionally, India’s heavy reliance on China for essential mobile phone components could be a significant vulnerability.

Development of a Local Component Ecosystem: The most sustainable growth scenario involves following Nokia’s example to foster a local ecosystem for component manufacturing. By incentivizing companies to produce key components locally, India could reduce import reliance and aim to become a global supplier in specific high-value areas, thereby achieving a more robust and self-sufficient industry.

Question for practice:

Examine the potential challenges and growth scenarios for India’s mobile phone industry and their implications for long-term sustainability.