On Smartphone Manufacturing In India

August 22, 2023

GS Paper III Indian Economy

Context:

Over the last few months, a debate has been going on between former RBI governor Raghuram Rajan (expressing concerns) and the Minister of State for Electronics Rajeev Chandrasekhar (providing favorable data) about the wellness of the Central government scheme to boost electronics manufacturing.

Significance of Manufacturing:

A key ingredient to economic growth
Creates a multiplier effect (every job created and every rupee invested in manufacturing has a positive cascading effect on other sectors in the economy.)

Concerns with Manufacturing in India:

Lacking adequate and required infrastructure
Archaic labor laws of India
Unskilled and less-skilled workforce

Solution by the Government to increase Manufacturing in India:

Raising import duties
Provide subsidies and incentives (like PLI).

About the PLI Scheme:

It is a key set of incentives where the government gives money to foreign or domestic companies that manufacture goods here.
Basis of the annual payout: A percentage of revenue generated for up to five years.

Significance of the PLI Scheme: Smartphone manufacturing has shown the most enthusiasm

High Rise in Mobile Phone Exports: From $300 million in FY2018 to $11 billion in FY23.
Decline in Imports of Mobile Phones: From worth $3.6 billion in FY2018 to $1.6 billion in FY23.

Raised Concerns:

Imports of mobile phone components shot up between FY21 and FY23.
A low level of (about 22%) mobile phone production in India is supported by the PLI scheme.
Low-level assembly work doesn’t produce well-paying jobs and doesn’t have the same multiplier effect that actual manufacturing might provide.

The Path Ahead:

To establish India as a manufacturing and supply hub there is a need to involve the supply chain and make most of the components here.
It is practical that everything needs time to produce results, but it is the government’s duty to build trust among its citizens and investors and try hard to achieve improving results at every outcome.

News Source: The Hindu