Phased manufacturing policy on handsets risks draining forex reserves

The government’s most-touted phased manufacturing programme (PMP) for mobile handsets has led to an increase in the value of component imports.
 
This is slated to get worse and may have an adverse impact on the country’s foreign exchange reserves (as a result of a higher outflow). 
 
According to industry estimates based on presentations to the NITI Aayog, which has been tasked to find a roadmap to make India into a mobile handset manufacturing hub, in 2018-19 there was an average value addition of 18 per cent in local mobile handset manufacturing.
 
But the import bill of components rose to Rs 99,816 crore on domestic mobile handset sales of $24.20 billion (Rs 162,309 crore).
 
In 2017-18, the country produced $25 billion (Rs 167,675 crore) worth of domestic mobile handsets but imported between Rs 84,000 and Rs 98,000 crore components to manufacture them at a much lower value addition of 12-15 per cent. 
 
MAIT, an association of the ICT sector, estimates that the National Electronics Policy (NEP) 2019 of the government, which is estimating that India would produce and export $80 billion worth of mobile handsets for exports by 2025, said that it would only increase imports in a big way.
 
Even assuming that the value addition doubles to 30-35 per cent (more or less in line with that of China currently), the import bill for components is estimated to be a staggering Rs 330,000 crore, which is an over threefold increase from the current levels.
 
MAIT has also pointed out in a discussion with the government that in spite of tariff intervention, the PMP has not been able to trigger largescale shift of component manufacturing in the country and India has a mere 5 per cent share of the global mobile handset market worth $485 billion (handsets).
 
Since component manufacturing is a matter of scale, the Indian market is not big enough to shift base to India until the market is conductive for exports.
 
Leading associations, apart from MAIT, including Internet and Mobile Association of India, the Indian Cellular and Electronics Association of India (ICEA), a body of mobile device manufacturers, and Broadband India Forum have in their communication with Niti Aayog pointed out that apart from deferring the PMP programme till March 2023, the government should shift from an “import substitution policy” to one focused on increasing exports.
 
The ICEA has admitted that the PMP programme has not met with success and it is mainly riding on the back of printed circuit boards, chargers and battery packs. The glaring misses it says in a letter, are mechanics, camera modules, connectors, speakers and microphones. It is also futile to have a PMP regime when zero duty imports are allowed on the same products from Asean countries, mainly Vietnam, as well as South Korea and Japan. 
 
The industry estimates that India currently exports only $1.2 billion of mobile handsets. However, the NEP 2019 has charted an ambitious target of $110 billion mobile handsets for exports by 2025, a move which will make India a net foreign exchange earner on mobile handsets even at 35 per cent value addition.