Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

The mobile phone sector has lessons for India’s economy

Note4Students

From UPSC perspective, the following things are important :

Prelims level : PLI scheme

Mains level : Paper 3- Lessons from the success of mobile manufacturing

Context

The mobile phones and room air conditioners (RAC) sectors in recent times have shown us the formulae for expansion of the manufacturing sector and growing exports.

How did India expand its mobile manufacturing base?

  • We were one of the largest consumers of mobile phones in 2014.
  • In 2014-15, our mobile phone imports exceeded $8 billion.
  • Our electronics imports were threatening to exceed our oil imports.
  • Steps taken by govt: The government took many steps like 100 per cent automatic FDI,
  • levy of import duties to protect local manufacturers,
  • the Phased Manufacturing Plan (PMP),
  • manufacturing clusters (EMC 2.0) and
  • the Production Linked Incentive (PLI) scheme.
  • They have attracted investments, created lakhs of jobs, and have moved us from being a net importer to a net exporter.
  • Our mobile phone manufacturing value has jumped more than eight times from Rs 0.27 trillion in 2013-14 to Rs 2.2 trillion in 2020-21.
  • We have surpassed the US and South Korea to become the second-largest manufacturer globally.

Steps need to be taken

  •  Our mobile phone exports are primarily limited to feature phones and low-value smartphones.
  • India must aim for a significant increase in exports from the current $4 billion.
  • China exports $200 billion, and Vietnam exports $60 billion worth of mobile phones.
  • The PLI scheme aims to achieve the same by allocating incentives of Rs 410 billion for the mobile phone category over the next five years.
  • Low value addition: Our value addition in mobile phone manufacturing is currently limited to 15-20 per cent versus more than 40 per cent in China.
  •  The scheme for promoting the manufacturing of electronic components and semiconductors (SPECS) is a step in the right direction.
  • We must focus on setting up a fabrication plant to manufacture semiconductor chips to facilitate complete vertical integration.

The Room AC sector story

  •  We imported RACs worth Rs 41 billion in 2017-18.
  • The government initiated multiple measures such as the PMP scheme, banning the import of refrigerant-filled ACs, increasing the import duty on RACs and critical components, and the PLI scheme.
  • From 2017-18, RAC imports have declined by 56 per cent to Rs 18 billion in 2020-21.
  • Our import of RACs has shifted from China to an FTA country like Thailand, where import duty isn’t applicable.
  • A judicious mix of protection (levy of import duty/banning of finished goods) and incentives (PMP, PLI scheme, 100 per cent FDI) has developed local manufacturing, created jobs, and turned a trade surplus.

Way forward

  • We missed the manufacturing/export bus in the 1980s.
  • We did excel in services like software to become back office to the world. With China+1 becoming a geopolitical imperative, it is an opportune time for us to expand the manufacturing sector and improve our export market share.
  • To achieve our true potential we need close coordination and seamless working between central, state, and local governments, the rule of law, improvements in infrastructure, especially logistics and flexible labour laws.

Conclusion

Many of our peers are ahead of us in ease of doing business, but none of them has a large domestic market like us. The automobile and generic pharma sector in the past and the mobile phone/RAC sectors recently have shown that we know the formulae.

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