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Rs 50,000-crore push to mobile manufacturing can't dent China's domination

The Rs 50,000-crore plan aims to achieve electronics production of Rs 8 lakh crore, including Rs 5.8 lakh crore of exports, and generate 10 lakh jobs, however, China will continue to keep a tight grip on the global electronics market

twitter-logoManu Kaushik | June 2, 2020 | Updated 21:45 IST
Rs 50,000-crore push to mobile manufacturing can't dent China's domination

KEY HIGHLIGHTS

  • Ministry of Electronics and IT has launched three schemes to attract five global handset makers
  • The schemes also plans to promote five domestic players
  • Mobile manufacturing likely to get big boost but China will continue to dominate the market
  • Indian government aims to ramp up the electronics production to Rs 8 lakh crore by 2025

Ravi Shankar Prasad, Union Minister for Communications, Electronics and Information Technology, formally launched three schemes to promote the domestic electronic manufacturing, especially the mobile manufacturing, in the country. Even though the schemes were notified by his ministry on April 2, the guidelines came into force from today. The Rs 50,000-crore plan aims to make India the global manufacturing hub for electronics goods, and to start contributing significantly to the global electronics supply chain.

Under the initiative, the government has a target to achieve electronics production of Rs 8 lakh crore, including Rs 5.8 lakh crore of exports, and generate 10 lakh jobs. The three schemes include production-linked incentive (PLI), promotion of components and semiconductors manufacturing, and setting up of clusters.

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While the scheme covers all sections of electronic manufacturing (strategic, auto, medical, industrial, telecom), special emphasis has been given to the mobile manufacturing. Why? That's because mobile manufacturing is the fastest growing segment within the electronics space.

Let's look at the numbers. As per the ministry, the domestic mobile device manufacturing is the largest segment among all of electronic manufacturing in the country that stood at $70 billion in 2018/19. Mobile manufacturing has jumped from $2.9 billion in 2014/15 to $24.3 billion in 2018/19, registering a compounded annual growth rate (CAGR) of over 70 per cent.

In these years, India has been able to ramp up its mobile manufacturing capabilities from 60 million devices (valued at $3 billion) in 2014 to 290 million (valued at $30 billion) in 2019. The government now intends to make mobile phones the largest exported item on the back of this plan.

Minister Prasad said that 5-6 companies control 80 per cent of the mobile market globally, and he intends to attract five top global players to set up manufacturing base in the country. He also said that the plan is to promote five Indian companies. "As I complete six years as Electronics Minister, this modest success gives us a sense of hope. We are working in the direction to fulfil a wish to become number one mobile manufacturer in the world," he said.

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Experts say that while the plan looks good on paper, the implementation is crucial. Also, the guidelines lack clarity in a lot of areas. "In the absence of any definition of manufacturing and value addition as eligibility criteria, a company can import 100 per cent of components and claim PLI," says a telecom analyst. Though at some point, the minister clarified that he wants the manufacturers to come along with their components makers.

At the moment, over 80 per cent of the smartphones manufactured here are actually completely knocked-down units coming into the country and getting assembled. In the mobiles business, companies are divided into two types. The first types are those who design their own phones, and get it manufactured through third parties.

Apple is a perfect example in this case which works with manufacturers like Wistron, Foxconn and Pegatron. Though these electronics manufacturing service (EMS) providers are based in Taiwan, they get their manufacturing done in China because of the cheap cost of operating factories (labour, etc) there. The other type of players like Oppo, Xiaomi, and Vivo get a bulk of their phones manufactured and designed through firms like WingTech, Huaqin, Longcheer and others (called original design manufacturers, or ODMs), which are primarily Chinese companies.

Now, these companies operate at scale, and because these are Chinese firms, the government have been giving them incentives that bring down their cost of production. "You cannot expect Apple to abandon China all of a sudden. These ODMs will think twice before moving the base to some other country because of the government's tight control over them. They cannot afford to antagonise Chinese government. Above all, it's difficult for the Indian government to match the incentives provided by China. These incentives might prompt them to open one more factory in India," says Neil Shah, VP (Research) at Counterpoint Research.

A mobile equipment veteran says that the fact that EMSs have been given incentives doesn't translate into large brands (like Apple and Xiaomi) investing themselves in the country. "The EMS companies will invest. Since the policy doesn't mention that the multinational brands are required to give long-term commitment to EMSs, what happens if their contract fails," he says.

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Credit to the Indian government, India has been able to grab some business from China in the recent years. For instance, China lost an estimated over 200 million handset assembling business to India and Vietnam in 2019. Indian government has hiked customs duty on components in the past years under "Make in India" programme that resulted in (mobile manufacturing) value addition going up from 6 per cent in 2016 to 12 per cent last year.

But this shift in business from China to India has benefitted just a few states. For instance, Andhra Pradesh and Tamil Nadu have done well, while others are still lagging. "It all depends on the infrastructure which remains a big issue in India. China has been able to provide electricity, water, and waste disposal facilities to these manufacturers," says a mobile components maker.

With the recent announcements though, the government is trying to correct some of the past mistakes. Under the clusters scheme, for instance, there's an emphasis to build plug-and-play infrastructure. The idea is to eliminate the initial challenges with land acquisitions, etc, so that companies can begin production within 4-6 months of coming into the country.

Electronics is reportedly one of the sectors that the government has identified to promote domestic manufacturing in the wake of anti-China sentiments picking up pace. Even though the policy is likely to attract large investments; China will continue to keep a tight grip on the global electronics market.

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