Centre notifies key scheme to manufacture mobile phones

Why in the News

The Ministry of Electronics and Information Technology (MeitY) has notified the Mobile Phone Manufacturing Scheme (MPMS), a ₹62,500 crore programme incentivising domestic assembly of smartphones and greater local value addition. The Union Cabinet approved the scheme on 15 July 2026. It succeeds the Production Linked Incentive Scheme for Large Scale Electronics Manufacturing, which ran from 2020 to the last financial year and rewarded incremental handset output from any qualifying firm. The new scheme splits that single track in two, creating a separate and richer channel for brands owned by Indian citizens and holding their intellectual property in India. What is contested is whether incentive design alone can move India from assembling other countries’ brands to owning its own.

Components of the Mobile Phone Manufacturing Scheme

1. Two parts: The notification divides the scheme in two, one part incentivising mobile phone manufacturing and one part supporting Indian mobile phone brands.
2. Part 1, the assembly incentive: A base incentive on assembly tapers from 2.75 per cent to 2.25 per cent across the five year tenure. Applicable rates run from 2.25 per cent to 5 per cent depending on the year and on incremental sales.
3. The domestic sourcing add on: An additional 1.5 per cent is payable on domestic component sourcing, built up from individual component incentives ranging from 0.2 per cent to 0.5 per cent.
4. Part 2, the Indian brand track: An Indian owned brand draws a flat 5 per cent incentive for the full tenure, plus a domestic design and research and development incentive of 3 per cent.

How does a firm actually earn the incentive?

1. Turnover gate: Mobile phone companies, including electronics contract manufacturers, need a turnover of ₹10,000 crore in 2025-26 to qualify. Electronics manufacturing services firms with 51 per cent Indian ownership qualify at ₹1,000 crore.
2. Growth gate: Incentives are disbursed only on sales beyond 115 per cent of the previous financial year’s production. A unit that produced ₹10 crore worth of phones in the preceding year and ₹12 crore in the next draws incentive on ₹50 lakh alone.
3. Sourcing condition: The 1.5 per cent additional incentive applies only where a firm sources domestically for at least a quarter of the phones it sells in that financial year.
4. No earmarking: The corpus is fungible overall, so no amount is reserved for domestic players. Foreign phonemakers face a higher bar to draw incentive, and they draw it from the same pool.

What does the scheme change for Indian brands?

1. Ownership test: An Indian brand must be majority owned by Indian citizens and incorporated in India, with intellectual property and trademarks held locally.
2. No sales floor: Indian brands are exempt from the minimum sales threshold that applies to other brands, and their baseline is fixed at 2025-26.
3. Stated intent: The Union Minister for Electronics and Information Technology framed the shift as one of Indian brand, Indian design and Indian intellectual property.
4. Discretionary channel: An empowered committee will make recommendations to the government on Indian brand applications for incremental incentives and for non fiscal support.

What has the assembly led phase achieved, and where has it stopped?

1. Import to export: Around 70 per cent to 75 per cent of phones sold in India were imports in 2014-15, and the country is now an exporter of finished handsets.
2. Global position: India is the second largest phone manufacturer in the world, and practically all phones sold in the country are made in it.
3. Shallow value: Domestic value addition in mobile phone manufacturing stands at 23 per cent, so most of the value in an Indian assembled handset is still created abroad.
4. A ceiling exists: The benchmark set by Chinese phone assembly units is itself bounded, because components in electronics value chains crisscross the globe several times before a device is finished.

What does the scheme set out to achieve by 2030-31?

1. Production: Cumulative production, measured as the combined sale value of finished products, is targeted at ₹39 lakh crore by the end of the scheme.
2. Exports: Cumulative exports over the same period are targeted at ₹5 lakh crore.
3. Value addition: The stated goal is to double overall domestic value addition from a band of 18 per cent to 23 per cent up to a band of 35 per cent to 40 per cent.
4. Employment: The Secretary of the Ministry of Electronics and Information Technology put direct job creation under the scheme at 60,000.

Why does the government treat phone assembly as a gateway sector?

1. Skill and technology spillover: Technology and skill transfer from handset lines is stated to enable adjacent hardware production, in laptops, tablets and smart watches.
2. New device categories: The same capability base is expected to carry into gaming consoles, drone manufacturing and medical devices.
3. Beyond electronics: Components and automobile windshields are named as further beneficiaries of the manufacturing ecosystem the sector builds.

Challenges to the Mobile Phone Manufacturing Scheme

1. Incentive concentrates in a few assemblers: A single fungible pool rewards volume, and volume already sits with a small set of contract manufacturers. Eg. Under the earlier electronics scheme, most disbursed incentive flowed to a handful of contract assemblers serving Apple and Samsung. Fix. Ring fence a defined tranche of the corpus for the Indian brand track instead of leaving the whole corpus open to competition.
2. The turnover gate excludes the firms the scheme names: A ₹1,000 crore revenue floor sits above what the surviving Indian handset brands turn over. Eg. Micromax and Lava operate at a fraction of the revenue of the contract assemblers they would compete with for the same pool. Fix. Add a staged eligibility ladder with a lower entry threshold and a rising production commitment.
3. The sourcing bonus has a thin supplier base to draw on: Displays, camera modules and application processors are not made in India at scale. Eg. Display panels and camera modules for handsets assembled in India are imported largely from China, South Korea and Vietnam. Fix. Sequence disbursement under the Electronics Component Manufacturing Scheme ahead of assembly incentive, so a supplier base exists before the bonus is claimed.
4. A demand slump erases a year’s eligibility: Incentive accrues only above a fixed growth threshold over the prior year, so a flat year pays nothing. Eg. Covid disruption in 2020-21 left applicants under the earlier electronics scheme unable to meet their first year incremental production targets. Fix. Allow an unmet incremental target to be carried into the following year within the same tenure.
5. Locally held intellectual property can be bought rather than built: The Indian brand test rests on registered ownership, which an assignment satisfies without design capability moving to India. Eg. Contract design houses in Shenzhen supply reference designs that brands across Asia rebadge as their own. Fix. Tie the design and research incentive to audited domestic engineering headcount and to patents filed from India.

Conclusion

The Mobile Phone Manufacturing Scheme has moved from Cabinet approval to notification, with operational guidelines issued on 21 August 2026 and a tenure running to 2030-31. The next milestone is the application round. Assemblers file against the turnover gate. Indian brands file separately for the brand track. Whether the second track becomes a genuine channel or a minority claim on a shared pool will be visible in the empowered committee’s first set of recommendations.

“[2025, GS3, 15 marks] Discuss the rationale of the Production Linked Incentive (PLI) scheme. What are its achievements? In what way can the functioning and outcomes of the scheme be improved?”