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Source: The post is based on the article “On smartphone manufacturing in India” published in “The Hindu” on 22nd August 2023.
Syllabus: GS3- Effects of liberalisation on the economy, changes in industrial policy and their effects on industrial growth.
News: The article discusses a debate between former RBI governor Raghuram Rajan and Minister Rajeev Chandrasekhar on the effectiveness of the Indian government’s production- linked incentive (PLI) scheme in promoting genuine manufacturing versus just assembly in the electronics sector, especially in mobile phone production.
What is government’s production- linked incentive (PLI) scheme?
Read hear: About the PLI Scheme
What are Raghuram Rajan’s arguments?
Program’s Efficacy: The Central government scheme isn’t turning India into a self-reliant manufacturing giant.
Dependency on Imports: While there’s a decrease in imports of assembled mobile phones, the imports of mobile components (like screens, batteries, and circuit boards) surged between FY21 and FY23.
Assembly vs. Manufacturing: Companies are largely just assembling phones in India using imported components rather than manufacturing them fully here. The end result is merely a ‘Made in India’ label.
Job Quality: The kind of jobs created through this scheme are low-level assembly jobs which don’t pay well.
Economic Impact: Such assembly work doesn’t produce the strong economic multiplier effect genuine manufacturing would offer.
Net Exports Concern: Even if only 60% of component imports are for mobile production, the import value would still surpass the export value.
What is the Minister’s response?
Use of Imports: Not all imported components (screens, batteries) are for mobile phones. They could be for other products like monitors and electric vehicles.
PLI Coverage: Only 22% of mobile phone production in India benefits from the PLI scheme.
Value Addition: While the current value added in India for mobile manufacturing is low, it’s expected to rise as the broader supply chain establishes in India.
Future Outlook: The PLI scheme’s long-term benefits, such as job creation and establishing India in manufacturing, will take time to become evident.
Conclusion
The debate centers on the PLI scheme’s true impact on Indian manufacturing. While Raghuram Rajan argues that it fosters low-value assembly over genuine manufacturing, Minister Chandrasekhar believes its long-term benefits will soon be evident. The real cost is the potential missed opportunities in other sectors like education when investing heavily in the PLI scheme.
