The electronics industry is a fast growing sector in the country. Domestic production increased from USD 29 Bn in 2014 to USD 75.7 Bn in 2019-2020.¹ Within electronics manufacturing, mobile phone manufacturing has attracted significant attention. The production of mobile phones in India increased in recent years from USD 3.1 Bn in 2014-15 to USD 31.7 Bn in 2019-20 (Iyer, 2021).There has also been a sharp increase in the number of mobile manufacturing units from 2 to over 200 between 2014 and 2019.² The growth in mobile phone manufacturing appears to have largely been driven by foreign firms such as Samsung and Huawei (Iyer, 2021).
Has this increase in manufacturing helped build local firm capabilities? The policy focus on development of local capabilities appears to be limited. At present, Indian firms seem to be largely involved in the assembly and subassembly of mobile phones.³ According to Iyer (2021), there has been a steady increase in the import of components. For instance, the import of printed circuit boards (PCBs) increased from USD 191.4 million in 2008-09 to USD 700 million in 2019-20. This is true even for items such as rubber and plastic where India may have a competitive advantage. The import of other parts such as plastics, batteries, rubber and screws increased from over USD 2 Bn in 2008-09 to over USD 7 Bn in 2019-20. The domestic value addition for mobile phone manufacturing is estimated to be around just 10 percent⁴, and the lack of an ecosystem for manufacturing of key components for mobile phones remains a concern.
The PLI scheme introduced in August 2020 for mobile phone manufacturing is intended to provide a further impetus to the growth of mobile phone manufacturing in India. As per the scheme, eligible companies that make mobile phones which sell for Rs. 15,000 or more will be given an incentive of up to 6 per cent on incremental sales of all such mobile phones made in India subject to some investment targets for a five year period. In a bid to address the large import of key components and possibly to boost domestic capabilities for these components, the government has also introduced high import tariffs on items such as screens for mobile phones as well as semiconductors. The import duty on semiconductors for instance is 18 percent.⁵
For some the high import tariffs seem to prioritise a form of import substitution. It remains to be seen whether such policies alone will promote the development of long term domestic capabilities required for the production of the high technology components critical for mobile phone manufacturing and support innovation more broadly. The inverted duty structure given the high tariffs for electronic components for example have been known to hurt innovation in the medical devices sector. Given the presence of several top global MNC R&D centres in India, including those in the electronics sector, policymakers should also focus on forming long term research partnerships in science and technology between the global MNCs and our higher education system, and fostering linkages between these MNC R&D centres and local firms to develop capacities for boosting the production of components domestically. India has a strong, underutilised scientific and technological prowess in the electronics sector. This is illustrated by India’s contribution to electrical & electronic engineering publications, which is the third largest in the world at 8.7 percent after China and USA.⁶ Policy measures in the form of targeted R&D tax incentives or even import duty exemptions on components in countries that are global leaders in mobile phone manufacturing should also be studied closely with the aim of developing our long term capabilities in research and manufacturing of electronic goods and components.
¹Invest India- Electronic System Sector in India
²India is World’s 2nd largest mobile manufacturer: 450% increase in production since 2014
³Catching up with China and South Korea. Business Line
⁴What is PLI for? Business Standard
⁵Import duty on Semiconductors after GST
⁶CTIER Handbook: Technology and Innovation in India 2021
Iyer, Chidambaran (2021) MOBILE PHONE MANUFACTURING IN INDIA: A STUDY OF FEW CHARACTERISTICS