The mobile phone sector has lessons for India’s economy
- A judicious mix of protection and incentives has helped expand India’s manufacturing base.
- That model must be expanded to more sectors.
A model for manufacturing expansion in India
- The mobile phones and room air conditioners (RAC) sectors in recent times have shown us the formulae for expansion of the manufacturing sector and growing exports.
- We were one of the largest consumers of mobile phones in 2014.
- In 2014-15, our mobile phone imports exceeded $8 billion.
- Our electronics imports were threatening to exceed our oil imports.
- The government took many steps like 100 per cent automatic FDI, levy of import duties to protect local manufacturers, the Phased Manufacturing Plan (PMP), manufacturing clusters (EMC 2.0) and the Production Linked Incentive (PLI) scheme.
- Despite some execution challenges on the ground, these steps have developed our mobile phone manufacturing base.
- They have attracted investments, created lakhs of jobs, and have moved us from being a net importer to a net exporter.
- Our mobile phone manufacturing value has jumped more than eight times from Rs 0.27 trillion in 2013-14 to Rs 2.2 trillion in 2020-21.
- Samsung runs the world’s single-largest location mobile handset manufacturing plant in Uttar Pradesh.
- We have surpassed the US and South Korea to become the second-largest manufacturer globally.
- The next frontier for us is to boost exports and increase value addition.
- Our mobile phone exports are primarily limited to feature phones and low-value smartphones.
- India must aim for a significant increase in exports from the current $4 billion.
- China exports $200 billion, and Vietnam exports $60 billion worth of mobile phones.
- The PLI scheme aims to achieve the same by allocating incentives of Rs 410 billion for the mobile phone category over the next five years.
- Global giants like Foxconn, Samsung, Wistron, and domestic companies like Dixon committing investments augurs well for this.
Scope for improvement in sector
- Our value addition in mobile phone manufacturing is currently limited to 15-20 per cent versus more than 40 per cent in China.
- The scheme for promoting the manufacturing of electronic components and semiconductors (SPECS) is a step in the right direction.
- Many parts like display panel assembly, camera modules, batteries, chargers, PCB assembly, etc, are being manufactured/proposed to be manufactured in India.
- This will increase the value-added to the Chinese level over the next few years.
- We must focus on setting up a fabrication plant to manufacture semiconductor chips to facilitate complete vertical integration.
- We should leverage our common interests with Taiwan, a global leader in chip manufacturing, for a head start. # Reasons of India’s limited manufacturing competitiveness
- Manufacturers are held back by poor workforce productivity, primarily because of a lack of automation, outdated manufacturing processes, limited use of design-for-manufacturing, and numerous non-value-added tasks.
Talent and skill shortage
- Rigid labor laws force companies to hire casual workers.
- Vocational schools are not well-equipped to train workers.
- Companies fail to focus on intermediate-level manager or foreman (meister) grades that can provide on-the-job training to direct labor, and Indian academics stress simulation and Excel modeling for engineers.
Inefficient supply chains
- Infrastructure bottlenecks and structural impediments attributed to state-level taxation policies have contributed to longer lead times and excess inventory across the value chain.
Lower levels of supplier competence
- Many Indian tier 2 suppliers have been part-to-print suppliers that have not invested in improving their product development or quality control capabilities.
- This has made rework and returns routine, further reducing productivity.
Measures taken to boost exports
- Assistance provided through several schemes to promote exports, namely, Trade Infrastructure for Export Scheme (TIES) and Market Access Initiatives (MAI) Scheme.
- Foreign Trade Policy (2015-20) extended by one year i.e. upto 31-3-2022 due to the COVID-19 pandemic situation.
- Remission of Duties and Taxes on Exported Products (RoDTEP) scheme and Rebate of State and Central Levies and Taxes (RoSCTL) Scheme have been launched with effect from 01.01.2021.
- A network of MSME Technology Centres (TCs) have been established which offer technological support and consultancy services to MSMEs.
- Enhance competitiveness through Cluster Development Programme for enhancing the productivity and competitiveness as well as capacity building of Micro and Small Enterprises (MSEs) to increase demand of domestic products in global markets.
- A comprehensive “Agriculture Export Policy” to provide an impetus to agricultural exports related to agriculture, horticulture, animal husbandry, fisheries and food processing sectors, is under implementation. * Improving ease of doing business. "