The mobile phone sector has lessons for India’s economy

News: India needs to apply the lessons learnt from mobile and room AC(RAC) sector on other sectors to reduce dependency on import and increase manufacturing.

 How mobile and RAC sector helped China in transforming its economy?

India and China had similar per capita GDP in 1983 but now Chinese per capita GDP will be five times that of India’s in 2022. China exports $200 billion worth of mobile phones.

However, India imported RACs worth Rs 41 billion in 2017-18. In 2014-15 mobile phone imports exceeded and threatened to exceed oil imports.

How mobile phones manufacturing grew in India?

One, various steps taken by the government. For example, 100 per cent automatic FDI, import duties, the Phased Manufacturing Plan (PMP), manufacturing clusters (EMC 2.0) and the Production Linked Incentive (PLI) scheme.

They have attracted investments, created lakhs of jobs and now India is a net exporter.

Two, mobile phone manufacturing value has jumped more than eight times between 2013- 2021. For instance, Samsung runs the world’s single-largest location mobile handset manufacturing plant in Uttar Pradesh.

Three, the PLI scheme allocates incentives for the mobile phone category. Global giants like Foxconn, Samsung, and domestic companies like Dixon are committing investments for this.

What India can do next to boost exports and increase value addition?

First, in India, mobile phone exports are limited to feature phones and low-value smartphones. We need to focus on value addition, which is currently limited to 15-20 percent.

The scheme for promoting the manufacturing of electronic components and semiconductors (SPECS) is a step in the right direction.

Second, there is a need to focus on setting up a fabrication plant to manufacture semiconductor chips to facilitate supply chain integration.

Third, leverage common interests with Taiwan, a global leader in chip manufacturing.

What are the measures taken by India to reduce import dependence on China for AC (RAC)?

The government initiated multiple measures such as the PMP scheme, banning the import of refrigerant-filled ACs, increasing the import duty on RACs and critical components, and the PLI scheme. This led to a decline in imports by 56 percent in 2020-21.

Also, India’s import of RACs has shifted from China to an FTA country like Thailand, where import duty isn’t applicable.

What are the lessons learnt?

 One, a judicious mix of protection and incentives has developed local manufacturing, created jobs, and increased exports.

Two, we need to replicate this success across sectors like specialty steel, automobiles, auto components, toys, bulk drugs, technical textiles, food products, solar PV modules, and medical devices.

What is the way forward?

First, with China+1 becoming essential, it is the right time for India to expand the manufacturing sector and improve export market share.

Second, India has a large domestic market, and the automobile, generic pharma sector, and the mobile phone/RAC sectors have shown that we know the formulae.

Third, India needs close coordination between central, state, and local governments.

Fourth, the rule of law, improvements in infrastructure and logistics, and flexible labour laws can play a significant role.

Source: This post is based on the article “The mobile phone sector has lessons for India’s economy” published in Indian Express on 20^th Jan 2022.