Mobile phone PLI is an India success story

Most reports fail to grasp the progressive benefits of the scheme

Several recent newspaper articles have tried to create a narrative questioning the role of the production-linked incentive (PLI) scheme in promoting mobile phone exports, citing low value addition in India.

The key elements of criticism include: The net imports of mobiles have turned positive only because of the imposition of higher tariffs; the incentive payment in PLI scheme may outweigh the value added in India; India became import dependent since the PLI scheme’s announcement; and that there is a need to reassess job creation and the associated cost for such jobs under the scheme. These points are largely incorrect, as detailed below:

Firstly, tariff policy changes are part of a deliberate strategy to increase domestic capabilities in manufacturing and exports. Currently, 99.2 per cent of mobile handsets used in India are Made in India, which is a significant increase from 2015.

Secondly, the PLI incentives are less than 6 per cent (will gradually account for less than 2 per cent), and only on incremental production. While the beneficiaries of the PLI scheme hold only 20 per cent of the market share, they accounted for 82 per cent of the mobile phone exports in FY 2022-23. Analysis shows that domestic value addition in mobiles is between 14 and 25 per cent, depending upon the model and complexity. Notably, robust development is seen in sub-assemblies and supply chains for chargers, battery packs, headsets, mechanics, camera module, and display assembly. New markets have been added for exports, including Western Europe, Americas and developed Asia, while the global supply chains are shifting to India. Green shoots in the component ecosystem, as seen with the entry of large Indian companies like the Tatas, demonstrate the positive externalities generated by such a policy intervention.

We need to consider what would have happened to imports of mobiles and its components in the absence of the PLI scheme and the time period for supply chains to be established as evident from the experience of other countries. China has built a $1.3 trillion electronics industry over 25 years, but still lacks the capacity to manufacture key smartphone components such as semiconductors, memory and OLED displays, which account for 45 per cent of the value. China’s import of electronics was $650 billion in 2022. Vietnam, after 15 years, has a $140 billion electronics industry with an 18 per cent value addition. The experiences of these countries highlight the importance of scale, particularly in exports, for increasing domestic value addition. 

For fostering a robust electronics manufacturing ecosystem, one must appreciate that various elements of the production process are at different stages of localisation. While the initial focus has been on attracting large-scale mobile phone assembly to India, the next phase aims to deepen the manufacturing value chain with localisation of components. A nuanced understanding of this progressive transition seems to be missing in most of the critical reports.

The Government of India has adopted an ecosystem approach to position the country as a global hub for electronics system design and manufacturing. In 2014-15, electronics production was $37 billion, with minimal value addition and high import dependency. Over the last nine years, India has made significant progress in electronics production, which has grown nearly three-fold to $101 billion in 2022-23 (industry estimates), exports have increased over four-fold to $23 billion, and value addition has increased to approximately 23 per cent. India’s share in global electronics manufacturing has risen from 1.3 per cent in 2012 to 3.75 per cent in FY 2021-22.

Consequent to the launch of the PLI scheme for electronics, India has emerged as the second-largest manufacturer of mobile phones in the world in terms of volume, with production increasing from 60 million mobile phones in FY 2014-15 to about 320 million in FY 2021-22. India’s contribution to the world’s mobile handsets is projected to reach 19 per cent this year, from 3 per cent in 2014. In value terms, the production of mobile phones has grown from Rs. 19,000 crore in FY 2014-15 to Rs. 3.5 trillion in FY 2022-23. Of the $101 billion electronics production, smartphones constitute $44 billion, including $11.1 billion in exports. There is sufficient evidence to establish that mobile manufacturing in India is becoming deeper as well as broader, with added domestic value addition, employment and incomes.

The PLI scheme for large-scale electronics manufacturing has attracted investment of Rs. 6,562 crore as of the end of FY 2022-23, which has led to total production of Rs. 2.84 trillion, including exports worth Rs. 1.29 trillion, and generated 100,000 direct employment opportunities and about 250,000 indirect employment. Notably, women employment accounts for 70 per cent of all the new jobs created. Since 2014, more than 1 million jobs have been added in the sector.

India achieved a huge milestone with Apple’s decision to significantly expand iPhone production in India, including manufacturing of its most advanced models. Projections are that a quarter of all iPhones will be made in India by 2025.

In conclusion, the success of PLI schemes can be seen through its contributions in terms of employment generation, increased foreign direct investment in manufacturing, higher exports with diversification of the exports basket, significant value addition, and the creation of a growing local value chain in many of the PLI products, especially mobiles.

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The writers, respectively, are secretary  and senior economic adviser at the Department for Promotion of Industry and Internal Trade, Government of India